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5 things to consider when forming a business in California

Starting a business is an extremely exciting venture. Owners can be their own boss, make their own rules and reap the rewards when the company finds success. Nevertheless, it is also a huge undertaking that involves numerous complex decisions.

Almost immediately, you need to decide what type of business you want to run. This decision has a lot riding on it, so it is crucial that you consider the options carefully. There is a helpful guide in this FindLaw article on the pros and cons of the different types of businesses, but basically, you will want to take five different factors into account when deciding on your business entity.

  1. Tax incentives or obligations: You can avoid income taxes on charitable money if you are a nonprofit corporation while regular corporations must pay taxes as a separate tax entity.
  2. Personal liabilities: Owners of sole proprietorships are personally liable for business liabilities; other entities enjoy limited liabilities.
  3. The number of owners or partners involved: You can spread liability across more parties if there are more people involved, but sole proprietorship may be more in line with your goals.
  4. Availability of finances right away: Certain business types demand immediate and sizable contributions, though financial benefits can be realized in the long run.
  5. Legal resources: Setting up any type of business requires some amount of paperwork and legal documentation, though the legal requirements for some business entities are far more sophisticated than they are for other types.

You would be wise to consider each of these factors when you are deciding on the type of business structure you want, but you don't have to do all the heavy lifting yourself. You can work with an attorney familiar with business laws in this state and experienced in helping new business owners choose an entity.

Your attorney can provide critical insight and information from the legal perspective on what type of business can more readily set you up for success as a business owner. Without legal guidance and support, you can overlook critical details and wind up making some avoidable -- and often costly -- mistakes. 

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