Building and launching a new company is difficult. While there are immense opportunities out there, startups also face a lot of challenges. According to data from the U.S. Bureau of Labor Statistics (BLS), approximately half of all new businesses fail within the first five years. To put your startup in the best position to thrive, it needs the right structure. Here, our Santa Monica startup attorney provides a guide for the 2021 update for structuring a new company in California. 

Know Your Options: A Startup Business Needs the Right Legal Structure

A great startup company needs the proper foundation. The first step in building a successful business in California is selecting the legal structure. There are a number of different business entities available for entrepreneurs to choose from. Each type of business entity brings its own set of advantages and disadvantages. It is imperative that you find the business structure that is best suited for the needs and goals of your startup company. Your available options include: 

  • Sole Proprietorship: A sole proprietorship is the most simple type of business entity in California. With a sole proprietorship, there is no real legal distinction between a company and its owner. It is a pass-through entity for tax purposes. No formation documents are required for filing—but it also offers no liability protection. 

  • A Business Partnership: If you are creating a new startup business with one or more other people, you may want to consider forming a partnership. Partnerships are also pass-through entities for tax purposes. Though, some types of partnerships—including limited partnerships (LPs) and limited liability partnerships (LLPs)—offer some form of personal liability protection. 

  • Limited Liability Company (LLC): A limited liability company (LLC) shares some similarities with a corporation—though it is taxed as a pass-through entity like a partnership. An LLC must be registered with the California Secretary of State and there must be a valid operating agreement in place. 

  • Corporation: A corporation is a business entity that exists wholly separately from its individual owners. It is the most complex type of business to form, but it also offers the greatest level of legal protection. Further, it generally offers the highest level of growth potential. There are several different types of corporations, including C corporations and S corporations. 

The Next Steps in Setting Up a Business in California

Choosing the right entity for a startup business in California is critically important. At the same time, it is far from sufficient to build the proper structure for a new company. There are a number of other issues that entrepreneurs need to address. Some of the next key steps in structuring a business in California include: 

  • Name and Register the Business: A startup business needs a legal name and a trade name. They can (but do not have to be) the same. Once the name is selected, the company should be registered with the California Secretary of State. In California, all businesses—apart from sole proprietorship—must be registered. Failure to properly register a business can cause a number of different problems. 

  • Obtain an Employer Identification Number: A startup business needs to obtain an employer identification number (EIN). Simply described, an EIN is like a Social Security number for a business. Your startup company needs to get an EIN even if you are not ready to hire employees at this time. 

  • Apply for the Appropriate Licenses and Permits: California is one of the more highly regulated states in the country. Depending on the specific nature of your business, you may be required to obtain certain licenses/permits from federal, state, or local government authorities. You and your partners must ensure that you have the proper licenses/permits in place before you start an operation.  

  • Open Financial Accounts: The funds of a limited partnership (LP), limited liability partnership (LLP), limited liability company (LLC), S corporation, or C corporation should be kept separate from personal assets. You should open financial accounts for your business. 

  • Create and Execute On a Business Plan: Finally, a successful startup requires a comprehensive, well-crafted business plan. A business plan is essentially a document that clarifies a startup company’s goals and sets out a strategy for making them a reality. What exactly a business plan entails depends entirely on the specific company. As a general rule, a startup company’s business plan should be flexible so that entrepreneurs are in the best position to address changing circumstances. The modern business world and current economic environment are unpredictable—startups need to be ready to make adjustments. 

California Startup Lawyer Itai Klein Can Help You Structure a New Business

By definition, startup companies are developing a unique or innovative product or service. The best startups are bringing something new to the marketplace. Every startup business has its own specific issues that need to be addressed. The structure that works well for another company—even a seemingly similar business—may simply not be the right fit for your company. 

A startup lawyer with nearly 20 years of experience representing entrepreneurs, Santa Monica business lawyer Itai Klein is committed to providing the highest level of personalized representation to clients. With a focus on strategic, efficient legal guidance, we will help your Southern California startup put the right structure in place to thrive. 

Contact a Resourceful Santa Monica Business Startup Attorney Today 

At KLEIN LAW, our California business startup attorney has the professional skills and legal experience that you can rely on. Our firm is here to help you and your business partners find the best solution. If you have any questions or concerns about how to structure a startup company, we are more than ready to help you find the right solution. 

Call us at (310) 295-2261 or connect with us online to schedule your fully confidential initial consultation. From our office in Santa Monica, we provide startup law services throughout Los Angeles County, including in Los Angeles, Long Beach, Burbank, El Monte, Downey, Palmdale, Pomona, Inglewood, Torrance, and Santa Clarita.