Importance of Having an Attorney Advise During the Formation of an LLC

importance of llc formation attorney

Making the decision to start up a new business is exciting. You can build something of real value to support yourself, your family, and your community. A limited liability company (LLC) is a flexible, cost effective legal structure for many different types of businesses. As forming any type of new business can be complicated, it is best to seek guidance from an experienced attorney who can help you put the right foundation in place. Here, our Fremont business formation lawyer highlights five considerations that should be addressed during the formation of a limited liability company (LLC).

1.   Whether an LLC is the proper form (eligibility, needs, etc.)

A limited liability company is a popular way to set up a business. As explained by the California Secretary of State, an LLC “offers liability protection similar to that of a corporation, but is taxed differently.” It combines some of the core advantages of a corporation and a partnership. That being said, an LLC is not the right form for every type of business. Some companies are better served by a different legal structure. Further, certain types of businesses in California—such as a medical, dental, or nursing practice—cannot be set up as an LLC. An attorney will help you determine whether an LLC is the right form.

2.   Selection of State for your limited liability company

When forming an LLC, you also need to decide where you are going to set it up. You may or may not want to make California the home state of your LLC. In some circumstances, setting up an LLC in a different jurisdiction—such as Delaware or Nevada—offers real advantages. In other cases, setting up an LLC outside of California adds complexity with no tangible benefit. A business formation lawyer can help you choose the right state.

3.   The applicability of liability protection

One of the central advantages of an LLC is that it offers liability protection. Simply described, an LLC helps to ensure that the members will not be held personally liable for the debts incurred by the business. Of course, the liability protection associated with an LLC is situation-dependent. It may not, by itself, offer adequate liability protection. Additional precautions may be required.

4.   Drafting and negotiating an operating agreement

Every LLC should have a written operating agreement. While LLCs doing business in California are regulated by California law, the reality is that many of your personal rights and responsibilities related to the business will be derived from your operating agreement. An operating agreement for an LLC should always be negotiated, drafted, and reviewed by an experienced business formation attorney.

5.   Compliance with ongoing requirements for LLCs

Finally, it is important to remember that LLCs must comply with certain ongoing legal requirements in California. In setting up an LLC, an experienced California business attorney can help you understand the ongoing and future requirements so that you are in the best position to comply. 

Get Help from Our California Business Formation Attorney Today

Lynnette Ariathurai is an experienced business formation attorney. If you have any specific questions about setting up a limited liability company (LLC), we are here to help. Contact us today to arrange a confidential consultation. We provide business law services throughout the Bay Area.

business formation, business formation attorney, business structure, limited liability company, LLC formation

LLPs vs Professional Corporations

business formation attorney

All businesses need the proper legal structure to thrive. For certain professionals that operate a business with more than one owner—attorneys, accountants, and architects—there are two options available: A limited liability partnership (LLP) or a professional corporation (PC). There are advantages and disadvantages to each of these entities. In this article, our Fremont business formation lawyer explains the key things to know about LLPs and PCs in California. 

An Overview of LLPs and Professional Corporations

As a starting point, it is useful to have a basic understanding of the two types of professional business structures. Here is a brief overview of these business entities:

  • Professional corporation (PC): Governed by California’s Moscone-Knox Professional Corporation Act, a PC is a specialized type of business entity that is registered for certain businesses that offer professional services.
  • Limited liability partnership (LLP): As explained by the California Franchise Tax Board, an LLP is a type of partnership business that allows certain eligible professionals to access many of the benefits—liability protection, pass through taxation, etc.—offered by an LLC. 

A Limited Number of Professionals Can Choose Between the Two Options

Not all licensed professionals in California have the option to choose between an LLP and a PC. In fact, you are only allowed to set up your business as an LLP if you are one of the following professions:

  • Licensed attorneys
  • Accountants
  • Architects

California law holds that other professionals are not eligible to operate their business as an LLP. In other words, medical doctors, physicians’ assistants, chiropractors, clinical social workers, dentists, nurses, optometrists, veterinarians, physical therapists, pharmacists, marriage, family and child counselors, and court reporters must operate as a PC.

LLPs Offer Additional Flexibility in Certain Circumstances

As LLPs share many common characteristics with LLCs, they offer several potential benefits to eligible professionals. Most notably, they offer business owners additional flexibility to customize their operations. As a partner in an LLP, you have access to enhanced protection from liability for professional malpractice claims filed against one of your partners, but the license holder for the LLP remains personally liable for all malpractice of the business. This differs from a general partnership where all partners are liable for the malpractice of one partner. Therefore, adequate malpractice insurance coverage is still recommended, as is errors and omissions insurance.

Setting up a well-structured LLP is complex. It is crucial that you have a properly crafted partnership agreement that clearly lays out ownership/operational rights and responsibilities. If you are a lawyer, accountant, or architect preparing to form an LLP in the Bay Area, an experienced California partnership agreement attorney can help. 

Know the Tax Differences: LLP vs. PC

In California, a PC is generally taxed as a C-corporation unless an S-corporation election has been made. LLPs in California are usually taxed as pass-through entities. A 2021 reform passed by state lawmakers (California Assembly Bill 150) created a new pass-through entity elective tax option. If you have any questions about what type of entity offers a more advantageous tax structure for your business, it is best to consult with a licensed certified public accountant (CPA).

Get Help from a Business Formation Attorney in the Bay Area

Lynnette Ariathurai is a California attorney with experience helping entrepreneurs start business. If you have any questions about LLPs vs professional corporations, we can help. Contact us today for a confidential initial consultation. With an office in Fremont, we serve communities throughout the Bay Area.

business attorney, business entities, business structures, limited liability partnership, LLP, PC, professional corporation

Are LLCs the Right Entity for You?

The current economic environment is highly competitive. It is more important than ever that businesses have the right legal structure in place. An LLC might be the right entity for your California business. Indeed, there are many reasons to select an LLC as a business entity. However, an LLC is not the right business entity for every situation. In California, certain types of businesses cannot lawfully operate as an LLC. Here, our Fremont business formation lawyer highlights the key things to know if you are trying to determine if an LLC is the right entity for your company.

Know the Benefits of Forming a Limited Liability Company (LLC)

As explained by the California Franchise Tax Board, a limited liability company is a type of business entity that “blends partnership and corporate structures.” There are a number of different potential advantages to operating as an LLC, including:

  • Ease of set up: It is relatively easy and cost-effective to set up an LLC in California. You will have to select a name for your LLC, complete form LLC-1 and submit it to the Secretary of State and pay California’s annual LLC tax. There are minimal other requirements, including annual compliance costs.
  • Liability protection: Perhaps the primary benefit of an LLC is that it offers strong liability protection. As a member of an LLC in California, your personal assets can be protected from the debts and liabilities of the business. There are limited exceptions, similar to a corporation.
  • Flexibility: A California LLC is a fundamentally flexible business structure. You can effectively structure your company in the way you feel works best—profits, financial obligations, and voting rights can be split however you and the other members desire. 

It is highly recommended that you have a professionally drafted operating agreement for your LLC. A well-crafted agreement will ensure that your rights and interests are properly protected.

California Law: Not All Businesses Can Operate as LLCs

It is important to emphasize that not every type of business can operate as an LLC in California. In fact, most licensed-businesses cannot be structured as an LLC. While there are limited exceptions, you should always consult with an experienced Bay Area business lawyer before moving forward. California law is evolving and certain CSLB, service businesses and home health care businesses can now be structured as LLCs.

For certain types of licensed professionals (lawyers, accountants, architects, etc.), an alternative type of business entity called a limited liability partnership (LLP) is an option. If you have any questions about forming an LLP, our Fremont, CA business formation lawyer can help.

LLCs are Not the Right Entity for Every Business

Even if your specific type of company can operate an LLC in California, it may still not be the best option for your needs. While LLCs offer some strong advantages—low administrative costs, liability protection, flexibility, etc.—there are also some downsides.

Most notably, an LLC operates as a pass-through entity for tax purposes. There will be a self-employment tax for LLC members. For this and other reasons, LLCs are generally not the best option for companies holding significant inventory, leasing expensive commercial space, or that have high overhead costs.

Consult With a Business Lawyer in the Bay Area

Lynnette Ariathurai is an experienced, solutions-driven business formation lawyer. If you have any questions about whether an LLC is the right entity for your business, please contact us today. We serve communities throughout the area, including Fremont, Newark, Union City, East Bay, Milpitas, San Leandro, Santa Clara, Hayward, and San Jose. 

business entity, business formation, business planning, business structure, liability protection, limited liability partnership

Steps to Purchase a Business in California

business formation

Are you thinking about buying a business in California? While purchasing an existing business can be exciting, it can also come with complications. If you already own a business and are looking for a new acquisition, you might have a clear idea of the type of business you want to buy. However, if you are just starting out, you should seek advice about choosing the best business in which to invest. You will also want to consider due diligence, and all the steps you will need to take to ensure that you do not end up buying a business that will cause significant problems in the long run. By working with an experienced business law attorney throughout the process, you can feel secure in knowing that you have legal representation to help minimize the risks and to guide you through the business buying process.

When you are considering a business purchase or acquisition, you should consider the following steps.

1. Decide on a Business You Want to Buy

Once you know you want to invest in a new business, the process of identifying the best company can be complicated. For anyone who is seeking to acquire a second (or third, or fourth) company, the process might be a bit easier—you already know your own strengths as a business owner, and you know the industries in which you feel comfortable doing business. If you are new to the business world, you should work with a lawyer who can help you to determine the types of industries that meet your needs, and the specific businesses that you may be interested in purchasing given your previous experience and industry knowledge.

2. Consider Your Financing Options

Most business purchasers need to secure financing to buy a business. Whether you have been involved in a specific industry for years or you are just starting out, your business law attorney can help you to determine the type and amount of financing you might be able to access.

3. Draft an Agreement to Buy the Business

Once you know the business you want to purchase and have a good sense of your financing options, you will work with your lawyer to draft a purchase agreement. The purchase agreement does not bind you to the purchase if there are significant legal issues—uncovering any financial or legal problems with the business can result in the purchase agreement being voided. How will you determine whether there are any major issues that need to be resolved? That is what the next step is for: due diligence.

4. Do Your Due Diligence

According to Score.org and the U.S. Small Business Administration (SBA), doing due diligence is how you will learn about any potential legal or financial problems with the business you want to buy. In performing due diligence, you can ask for a wide variety of materials related to the business, including financial documents, contracts, business equipment, assets, trade secrets, and other intellectual property. This step is also when you will make difficult inquiries about current legal obligations, and any potential legal obligations in the future. Before you buy a business, you need to have clarity about liens, judgments, licenses, permits, zoning issues, debts, and any pending lawsuits.

Your business lawyer will play an important role in the due diligence process and can help you to assess the types of risks you are facing in buying the business. Attorney Lynnette Ariathurai can determine whether the risks and liabilities linked to the business are acceptable and can clarify your options for minimizing future risks if you move forward with the purchase.

5. Closing

If you decide to move forward with the business purchase, you will work with your business lawyer to take all necessary legal steps prior to the closing, at which point you will review and sign the purchase agreement, along with any financial documents.

Contact a Business Lawyer When Buying a Business

Do you have questions about buying a business, or do you need representation for a specific business purchase? Our law firm can assist you from start to finish when it comes to purchasing a business in California. Contact attorney Lynnette Ariathurai today to get started.  We support businesses legal needs in the East Bay area including Fremont, Newark, Hayward, Milpitas, and Union City.

business attorney, business law attorney, buying a business, California business law, purchase a California business, purchasing a business

Attorney for Buying a Business

Lynnette Ariathurai, Bay Area Business Attorney

If you are considering a purchase of an existing business, it is important to work with an attorney for buying a business. Purchasing a business can be a complex process, and many legal issues can arise in the process of looking for a business to buy, securing financing for the purchase, and getting the business running again. If you are in the market for a business, you should know that an experienced Fremont business lawyer can provide you with the services you need. As you consider your options for buying a business, the following are issues and concerns that you should consider.

Looking for a Business to Buy: Selection and Marketplace

Seeking out a business to buy can be a complicated process in and of itself. How do you select the type of business to buy? Generally speaking, you should seek out businesses that have ties to your own professional work and expertise. If you do not have experience in a particular industry, buying a business in that field can be much more difficult than buying a business in a field with which you have some familiarity.

Once you decide on the type of business you should be selecting, it will be time to locate the business that you want to purchase. You should work with a lawyer to understand the marketplace and your options for selecting an appropriate business.

Due Diligence Prior to Purchasing a Business

Prior to buying, you should develop a due diligence checklist that includes a variety of tasks you will need to complete with assistance from an experienced business law attorney.

You will also need to secure financing for the purchase. In order to secure financing, you will need to provide a significant amount of information to the lender about the business, which you will gather in the process of conducting due diligence. An article in Reuters discusses key elements of due diligence. Generally speaking, due diligence should include the following for most types of business purchases:

  • Researching the business’s financial information, including any existing liens, debts, tax returns, expenses, profit margins, and inventory;
  • Gather information about the structure of the business and the business formation of the company, which will provide you with information about the business’s bylaws or articles of incorporation, shareholders or investors, and compliance filings;
  • Determine the business’s assets, including commercial real estate, equipment, furniture, and products;
  • Learn about existing employee and customer data, including any existing disputes or litigation;
  • Review existing business contracts, including employment contracts, restrictive covenants, mortgages, leases, stock purchase agreements, and existing agreements with suppliers or vendors;
  • Determine whether there are any existing legal issues or disputes involving the business; and
  • Investigate existing intellectual property, such as existing trademarks or service marks.

Guidance on Liability and Minimization of Risk

If you or your company is considering purchasing a business, it is imperative that you carefully assess all of the potential risks. The absolute last thing you want to deal with is an unanticipated issue that could expose you to legal liability. Among other things, these debts could include employee wages, contractual obligations, loans, state or federal taxes, commercial leases, and other financial responsibilities.

Hiring a Knowledgeable Business Attorney is Important

Given extensive experience practicing business law, your attorney will review all relevant purchase documents, offer guidance on liability, and help you minimize the risks. It may be important to send a bulk sale notice to all affected creditors, including state and federal tax authorities. By doing so, you will notify creditors that assets are being transferred and impose a time limit for them to bring any claim. A well-drafted asset purchase agreement will help to ensure that your company is not subject to unknown liabilities.

With a full understanding of the risks as presented by your business attorney, you and your business partners can better protect your financial interests. In some cases, it may be advisable to buy the company’s individual assets instead of the entire business. In other cases, purchasing an ownership stake in the company may be the best path forward. There are additional ways to obtain protection in a purchase, such as temporarily holding back a portion of the purchase price, including comprehensive indemnification provisions, and obtaining insurance.

Business Law Matters After Your Purchase

Depending upon the type of business you bought, it may be necessary to change the business structure, and you may need legal assistance with business formation questions. New businesses, and new business owners, will also need to draft enforceable contracts for employees, vendors, suppliers, and other parties. Business contracts can be complex, and you should always work with an experienced business lawyer who can ensure that your contracts are likely to be enforceable in the event of a dispute.

The attorney you hire for buying a business can also assist with other outstanding legal items that are likely to arise in the early stages of buying a business.

Contact a Business Lawyer in Fremont

Buying a business can be a complex endeavor, but an experienced California business and corporate attorney can assist you. At The Law Office of Lynnette Ariathurai, we serve clients in Fremont, Hayward, Union City, Milpitas, and Newark, California. Contact attorney Lynnette Ariathurai today for assistance with buying a business.

business attorney, business law attorney, buying a business, purchase a business, purchasing a business

Will a T-Mobile/Sprint business merger get approved?

Two major U.S. wireless carriers are reportedly almost ready to submit a proposed agreement to antitrust regulators for approval. This mega business merger between T-Mobile and Sprint is projected to draw negative comments from the current presidential administration as the antitrust regulators adamantly expressed disapproval of proposed AT&T/Time Warner merger earlier this year. If approved, the T-Mobile/Sprint deal will create a combined company valued at approximately $146 billion. California residents considering stock purchases in either of these companies may want to stay updated on the situation.

Telekom currently owns a major portion of T-Mobile and would reportedly have controlling interest in the new company if the business merger takes place. Sprint and T-Mobile have always been fierce competitors. For the past four years, they’ve been discussing a plan to combine efforts to take on other telecommunications giants, such as those mentioned earlier in this post.  

The public would hold approximately 31 percent of the shares in the new company if the merger goes through. Company leaders say the new company would provide an unsurpassed network experience for its customers. As it stands, T-Mobile and Sprint have combined liabilities totaling $60 billion.  

Not every potential deal between two or more companies involves assets worth more than $100 billion. However, even mergers that take place on much smaller scales can significantly impact productivity and profitability within their respective companies. In fact, some mergers keep companies from going under and propel them toward future success by expanding their sizes and making them stronger competitors. To avoid major delays and obstacles in a proposed plan, it is always a good idea to have someone well-versed in California business and commercial law on hand to address any issues that arise.

tech business merger, telecom mergers

Planning Ahead For A Successful Business Merger

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Mergers & Acquisitions on Friday, May 26, 2017.

Many people in California and throughout the United States are foregoing college educations to pursue entrepreneurial opportunities. It’s a rather controversial topic with advocates and naysayers on both sides. Both choices often lead to business ownership, and owning a business often leads to an eventual business merger. Thorough research and careful planning can set the stage for successful expansion.

When considering a business merger, there are several things to keep in mind. First and foremost is the fact that once the deal is finalized, a new company exists. Therefore, it’s important to think things through and make well-informed decisions so the outcome will provide the greatest chances for increased business success.

A successful business manager who now coaches CEOs and entrepreneurs advises anyone considering merging with another company or acquiring additional business assets to remember several things. First, it’s important to maintain a work ethic and start-up plan that sets the stage for complete integration and successful mergers. It also helps to be aware of the estimated value and potential costs of a proposed merge.

Many California business mergers fail to boost shareholder returns. This is another reason it’s crucial to thoroughly research a plan and check for possible flaws ahead of time. A business and commercial law attorney can provide many services that assist business owners as they navigate the mergers and acquisition process. From reviewing a proposed plan and making suggestions where changes may be needed to negotiating terms and agreements with other companies’ leaders, aligning oneself with experienced legal representation is often a key to success.

business planning, buy a business, merge a business

Legal Challenges Not Uncommon When Selling a Business

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Sales & Dissolutions on Thursday, April 7, 2016.

There are any number of reasons why a California business owner may decide to relinquish ownership by selling a company. Often, legal challenges arise during the process of selling a business that may be best addressed through sound and experienced legal counsel. Sellers and buyers often have very different perspectives regarding potential deals, and sellers often want to make certain that the appropriate valuations are assigned to their businesses before allowing ownership to change hands.

There are various factors to consider when attempting to value a business. The most obvious is to add up all company assets to calculate a selling price. Both net and future potential incomes may also be considered when determining how much a business is worth. The bottom line is that business owners want to protect their interests when determining fair selling prices for their companies.

A business owner often obtains a professional valuation before negotiating a sale. As the process unfolds, at some point, a contract must be drafted requiring signatures of both the seller and buyer in order to finalize a sale. It is crucial to clarify all legal terms, obligations and fine print details in a sales contract to avoid possible disputes from arising.

Anyone selling a business in California who wants to discuss the matter with a business and commercial law attorney can do so by contacting a law office in the area to request a consultation. There are many ways in which an experienced attorney can be of service to a business owner during sale negotiations and contract resolutions. Whether assistance is needed to properly value a business, clarify state law or negotiate a contract dispute, a first logical step to take to resolve such issues would be to seek guidance from a local attorney.

Source: bizbuysell.com, “How To Value A Business“, Richard Parker, Accessed on April 6, 2016

business valuation, Contract Disputes, Sales & Dissolutions, selling a business in california

Reverse Business Merger is an Alternative Way to Obtain Funding

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Mergers & Acquisitions on Monday, May 5, 2014.

Startup companies have many challenges to overcome when starting a new business. One of the most common and significant challenges facing a startup is obtaining venture capital in California or in any other state. Many times there are more startups looking for funding than there are venture capital and Angel investors available. However, one unorthodox method of obtaining capital, which has gained some popularity recently, is using a business merger to garner funding.

However, startups looking to go this route are engaging in a specific type of merger known as a reverse merger. This type of merger is usually utilized in order to avoid the process and expenses related to an Initial Public Offering (IPO). Usually, a dormant shell company is chosen for this type of transaction. However, there are many shell companies that have less than pristine histories; therefore, it is important to properly research a shell company’s past in order to avoid any unforeseen liabilities.

Also, many public shell companies that are ready to be sold are not listed by NASDAQ, but instead are traded on less prestigious avenues. For example, the OTC Bulletin Board is a common place where shell companies are listed instead of the NASDAQ. Although these companies can be renamed and moved to the NASDAQ, this may end up negating any savings on expenses and time, which would be the original intent of a reverse merger.

Additionally, one must be sure to follow all proper rules and regulations when completing a business merger of any kind in California or any other state. This means having full knowledge of applicable laws. Incorporating a compliance strategy into one’s business plan will help to avoid future lawsuits and criminal charges, which would be highly detrimental to any business.

Source: Forbes, “Is A Reverse Merger The Way To Fund Your Startup?“, Martin Zwilling, May 2, 2014

business funding, IPO, Mergers & Acquisitions, reverse merger, shell companies

California Real Estate Company Expands With Business Merger

On behalf of The Law Office of Lynnette Ariathurai, A Professional Corporation posted in Mergers & Acquisitions on Thursday, November 14, 2013.

There are a variety of methods that a company may utilize in order to expand its share of the market. Some of these may include marketing, advertising or strategic property purchases. However, many times the best way to do this is through a business merger. This is what one California real estate company has decided to do in its recent merger with another real estate company.

The company, TRI Pointe Homes, is in the middle of finalizing its merger with Weyerhauser Real Estate Co. The merger is estimated to be a $2.7 billion deal and will give TRI Pointe Homes a larger control of the nationwide real estate market. The deal will bring an additional 27,000 properties into the company’s real estate portfolio. Approximately 16,000 of these properties will be located in California, which will make the company a significant force in the state’s real estate industry.

The merger will give TRI Pointe Homes ownership of Weyerhaueser’s five brands: Quadrant Homes, Winchester Homes, Pardee Homes, Trendmaker Homes and Maracay Homes. Weyehaeuser’s shareholders would account for approximately 80.5 percent of ownership in the newly merged real estate company. The merger is predicted to be finalized by the third quarter of 2013.

However, in order for this business merger to be successful in California, all of the legal terms of the transaction must be properly detailed in necessary legal contracts between the parties involved. The contracts should be carefully drafted in order to minimize any misunderstandings that may lead to future lawsuits. Knowledge of applicable laws regarding contracts and business will be integral. Additionally, it is important to file the correct paperwork with the proper regulatory agencies.

Source: Los Angeles Times, Home builders TRI Pointe, Weyerhaeuser Real Estate to merge, Andrew Khouri, Nov. 4, 2013

business mergers, commercial real estate business law

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