Sole proprietorships are single-person businesses. Only one person owns the business and is personally responsible for it's debts. These businesses will generally operate under a fictitious business name, like Harry's Coffee House. Sole proprietorships are one of the most common businesses. In fact, a lot of businesses are sole proprietorships without even knowing it! If the business is not a corporation or a limited liability company and has more than one member, the business is considered a partnership.

Here are some of the advantages and disadvantages of forming a sole proprietorship in Sacramento:

Sole Proprietorships Advantages

• Easy Setup. Sole proprietorships are very simple and inexpensive to setup.
  
  
  
  • The owner will still need to comply with local registration and business licenses. A restaurant, for example, may need an alcoholic beverage license, a health permit, commercial refuse collection permit, storm water fees, etc. Check out http://www.calgold.ca.gov/ for permitting assistance in California.
  
  
  
  


• Control. The single owner controls the entire business and runs the operations.

Sole Proprietorships Disadvantages

• Personal Liability. The owner of a sole proprietorship is personally liable for all debts and actions of the business.


• Legal Separation. Zero legal separation between the business and the person.


• Business Life. Upon death, the business no longer exists.

A Partnership is an agreement between two or more individuals to carry on as co-owners of a business for profit. There are no legal filing requirements or specific documents to form a partnership. A mere agreement will suffice and automatically create a partnership.

Here are some of the advantages and disadvantages of forming a partnership:

Partnership Advantages

• Minimal Formalities. Partnerships are not required to elect officers, hold regular meetings, draft corporate and meeting minutes, or issue stock or membership certificates.


• Easy Setup. Partnerships can be created with an informal agreement to start a business. There are no formal filing requirements.


• Split Profits. A partnership will automatically form equal shares in management, profits and losses, and debts and liabilities of the business. However, the split profit structure can be altered with a partnership agreement that opts out of the standard rules.


• Taxes. Partnership are considered pass-through entities. Therefore, the partnership itself does not pay taxes on the income. The income passes through to the owners of the business and they are taxed individually. Compared to corporations, this creates a simple taxing structure.

Partnership Disadvantages

• Personal Liability. The owners of a partnership are personally liable for all debts and actions of the business.


• No Formalities. A lack of formalities can create a lack of organizational structure.

Partnership Agreements

A partnership agreement is not required, but highly recommended. If no partnership agreement is drafted, the two members will automatically fall into the default rules and local state's laws will govern the business relationship. A partnership agreement should clearly state each parties intentions with the business. The goal is to reduce any arguments in the future. These agreements help establish roles for the partners and understandings of each others expectations. Contact our attorneys for help in drafting a partnership agreement.

Buy-Sell Agreements

What happens if a partner decides to leave the business? This can create a legal nightmare if this situation is not dealt with in advance. A buy-sell agreement establishes an option for one partner to buy out the other partner if they want to leave the business. This creates written, agreed-to in advance, rules that make departures smooth. Contact us for help in drafting a buy-sell agreement.

Types of Partnerships

• General Partnership;


• Limited Partnership; and,


• Limited Liability Partnership.

Corporations can be an option whether the owner is starting a new business or transitioning from a sole proprietorship or a partnership. Corporations are business entities with shareholders that are either privately held or publicly held and sold to the public. The law views corporations as separate legal "persons." This means that corporations may enter into contracts and incur debts separate from the individual shareholder owners.

Our business formation attorneys break down some of the advantages and disadvantages of forming a corporation as follows:

Advantages of Corporations

• Limited Liability. The debts of the corporation are separate from the shareholders; therefore, the shareholders only stand to lose the amount invested in the corporation. Any personal assets of the shareholders are protected, like their bank account and house. Board members, however, may be liable in some circumstances, like mismanagement of corporate funds.


• Investor Opportunities. Ownership interests are great motivating tools for employee productivity. Corporations also provide outside investor opportunities such as venture capital and angel funds. Startups seeking possible investments in the near future will likely consider C-Corporations depending on their investment needs.


• Corporate Formalities. Adhering to corporate formalities is generally seen as a negative; however, these formalities can ensure there is a structured approach to doing business. They establish a Board of Directors and create a formal process for doing business. For some individuals, this hierarchy scheme is welcomed. Moreover, this hierarchy can help establish credibility with customers.


• Tax Advantages. A corporation may deduct health and life insurance premiums. Moreover, not all income is subject to social security, medicare taxes, and workers' compensation withholdings.


• Corporation's Life. Corporations live forever, or until they are dissolved. Sole proprietorships, for example, are dependent on the life of their owners. If the owner dies, the sole proprietorship dies as well. Someone who owns an interest in a corporation may sell or transfer their interest at any time, and the business will continue to operate.


• Transferability of Ownership. Shareholder interests in C Corporations are easily transferred and sold.

Disadvantages of Corporations

• Double Taxation. Profits for C Corporations are taxed when the income is distributed to the shareholders. Shareholders receiving the distributed income are then taxed on their personal tax returns. This can be avoided by making an S Election; however, that changes investment opportunities.


• Corporate Formalities. In order to avoid what is coined "piercing the corporate veil," the corporation must hold annual meetings, keep meeting minutes, maintain bank accounts, file taxes, maintain a board of directors, keep certain records, and ensure the proper compliance with all legal formalities. This can be tedious, burdensome, and scary for the uninitiated; however, the Sacramento business attorneys at Rooted Legal PC help new business owners with all of these formalities.


• Personal Ownership. There is no personal ownership in corporations. The corporation is a separate entity governed by the Board of Directors. In essence, the individuals themselves will no longer have complete control of the business.


• Costs and Expenses. Its more expensive to start a corporation than a sole proprietorship DBA. There are state, and possibly federal, filing fees. There are also pay withholding taxes and other expenses.

Rooted Legal PC, is a Sacramento law firm dedicated to helping businesses in their day-to-day business operations. Running a business is a time-consuming task. As a small business, we understand. Business owners frequently need to wear multiple hats like accounting, sales, IT, and customer service. Our business law firm is here to help ease the overwhelming concerns relating to operating a business by providing support for day-to-day business operations.

Multiple local and national businesses have our Sacramento business attorneys on retainer. This means the business owners and representatives may call our firm any time they have a question or need assistance. Businesses may rarely need legal assistance; but, knowing when to contact an attorney and having an attorney easily accessible will certainly help keep a business out of potential legal problems.

Services our Sacramento business attorneys provide for day-to-day business operations:

• Meeting Requirements and Meeting Minutes;


• General Corporate Compliance and Counsel;


• Filing Required Statements of Information;


• Training Sessions on Trade Secrets;


• Ensuring Compliance with Corporate Formalities; and,


• Various Other Daily Business Operational Needs.

Attorneys Fees for Daily Business Operations

We typically handle daily business operations on an hourly basis. Clients set up a retainer that is placed in a trust account. Our business attorneys deduct from the trust account based on the hourly rate and the work performed for the client. A retainer allows our clients to call day and night to discuss their legal needs.

A Limited Liability Company LLC is basically a hybrid of a partnership and a corporation, taking all of the good elements from each entity and leaving the bad ones. We have listed a few of the positive aspects related to forming an limited liability company LLC below; however, each particular situation may vary and its always a good idea to set up a consultation with an attorney prior to forming an LLC or other business entity.

Advantages of Limited Liability Companies

• Limited Liability. Members of limited liability companies may limit any personal liability to the amount of their investment. Hence, generally speaking, a member of an LLC is not personally liable for any debts or obligations of the limited liability company LLC; therefore, the individual member's assets like their house and bank account are protected.
  
  
  
  • There are exceptions however, like a court judgment, personally agreeing to be liable, the alter ego doctrine, personal tortious conduct, breach of a fiduciary duty by a manager or director, as well as a few other specific exceptions.
  
  
  
  


• Tax Benefits. A limited liability companies with two or more members may elect taxation as a partnership or a corporation. Taxation as a partnership on both the state and federal levels is generally very beneficial. The limited liability company LLC will avoid the double taxation related to a general corporation and will not have the restrictions associated with an S corporation, close corporation, or limited partnerships. A limited liability company LLC also allows for a flexible allocation of income, gains, and losses according to an agreement rather than standard capital interest.


• Management Participation. Corporations are heavily governed. Limited liability companies, on the other hand, has much more flexibility and may be managed by members or non-members. This provides an opportunity to expand the knowledge and specialization of management; thus, establishing a solid foundation for business judgments.

Disadvantages of Limited Liability Companies

• Corporate Formalities. In order to avoid what is coined "piercing the corporate veil," the corporation must hold annual meetings, keep meeting minutes, maintain bank accounts, file taxes, maintain a board of directors, keep certain records, and ensure the proper compliance with all legal formalities.


• Costs and Expenses. It is more expensive to start limited liability companies than a sole proprietorship DBA. There are state, and possibly federal, filing fees. There are also withholding taxes and other expenses.

The business attorneys at Rooted Legal PC have helped countless entrepreneurs start their businesses. We have helped breweries, cell phone accessory stores, bail bonds agents, credit card processing companies, real estate holding companies, salons, grocery stores, web development and SEO companies, online directories, nonprofits, political organizations, and many other businesses startup. The startup attorneys in Sacramento have helped businesses with business plans, entity formation, and internal documents. Rooted Legal PC is a business law firm ready to help entrepreneurs and startups.

Business Plans

The first step most businesses take after deciding on an idea is to begin drafting their business plan. A business plan breaks down the key elements of the business. Generally, it will include information on the company, market analysis, services to be provided, information on the management, implementation strategy, financial plans, and other related information. The modern trend is to avoid drafting business plans or to draft brief plans; however, if an entrepreneur is seeking funding from a bank or a private offering, a business plan is a necessity. Our startup attorney will always recommend a business plan or, at the very minimum, a cash flow statement projecting the first few years of operations.

Our attorneys have reviewed and drafted a great deal of business plans. Their experience handling business plans from several different industries has provided them with a unique understanding that benefits our clients. If you're an entrepreneur looking to start a business, our startup attorneys will be able to provide sound advice and we invite you to contact our law office to set up an initial meeting.

Sacramento Startup Formations

Forming a startup company can be a difficult task. Several projections need to exist in order to know whether a limited liability company or a corporation is more appropriate. It depends partly on projected cash flows, investor opportunities, and exit strategies. Questions an entrepreneur should ask, for example, are whether the startup will be offering employee stock incentives or health insurance. Our Sacramento startup attorneys are familiar with the different relevant factors and can walk an entrepreneur through the process.

Internal Documents

The business attorneys at Rooted Legal PC are fully experienced in drafting internal documents for startups. Our business lawyers have drafted employee handbooks, meeting minutes, intellectual property assignments, acquisition documents, buy-sell agreements, and much more.

Unique and Flexible Billing Structures

Entrepreneurs and startups don't always have an abundance of capital at the beginning of their operations. Our business attorneys try to help by providing flexible billing structures. For example, our business attorneys can be "on-staff" counsel for your startup. Your startup can keep some funds in our law firm trust account and our attorneys will always be on call. The attorneys would deduct from our trust account based at an hourly rate.

Our law firm is also open to obtaining a percentage of interest from the startup and working at a reduced hourly rate. Alternatively, our attorneys might offer a reduced hourly rate until your startup obtains funding and then our business attorneys would be reimbursed the difference in fees. We also offer traditional billing structures, such as flat fee for certain services and hourly for other services.

Essentially, our business lawyers are open to unique and flexible billing structures. Learn more by contacting our law firm and setting up an initial consultation.

Contact Sacramento's Entrepreneurs and Startups Attorneys

Are you an entrepreneur hoping to launch a new business? We can help draft internal documents, formation documents, assignment agreements, and any number of other documents. Our startup attorneys can also help with the business plan. Contact Sacramento's Attorneys Rooted Legal PC today!

Call Us: (916) 669-8400