Forming a new business venture is an exciting time for small business owners. The possibilities that may develop from the business venture seem endless, and it is easy for business owners to envision positive outcomes.
Despite the positive outlooks many business owners have for their business, the reality is that a majority of businesses fail in their first 5 years. Businesses-either because of poor market penetration, financial complications, or some other reason–fail.
A failed and unincorporated business can result in headaches for business owners. Coincidentally, a business owner can avoid these headaches by incorporating his or her business.
Is Incorporation Right for Me?
Business owners should first consider whether or not they want to incorporate their business or startup. In a majority of instances, incorporation is the correct decision for business owners.
One of the reasons business owners incorporate their business is to limit their exposure to potential liability. In the majority of cases, incorporation affords business owners the opportunity to avoid personal responsibility for business debts. Limited liability shields owners’ personal assets (homes, boats, etc.) from the business’ creditors.
Incorporating a business or startup may also provide for tax breaks that would be otherwise unattainable. Tax laws often provide corporations with tax write-offs that are otherwise not given to sole proprietorships and partnerships.
Incorporation allows for growth and future planning. Corporations can exist in perpetuity, meaning that business owners can incorporate their business in anticipation that their business entity will be successful for generations to come.
Incorporating in California
Once a business owner decides to incorporate, he or she must elect a state in which to incorporate. Several states, including Delaware and Nevada, are considered to be business friendly because of their laws regarding taxation and privacy. Still, it is not always wise for business owners to incorporate in Delaware or Nevada. Sometimes, business owners may benefit most by incorporating in their own state.
California, unfortunately, has the unfair perspective for being a state with a poor business climate. The state, however, continues to lead the in technology-related ventures. Moreover, more and more entrepreneurs are continuing to call California home.
It would be wise to incorporate in California if your business or startup is both located and conducting business in California. Businesses and startups conducting business in California must file statements of qualification and pay California’s franchise tax of $800 per year. A business that incorporates elsewhere may be required to pay fees in their state of incorporation in addition to California’s mandatory fees. Therefore, incorporating in California makes financial sense.
CONTACT A CALIFORNIA STARTUP AND SMALL BUSINESS ATTORNEY TODAY
Electing to incorporate your business is a decision that should be made after considering all available options. This complex process can be made easier by seeking commonsense counsel. Kalia Law P.C. is committed to providing your small business or startup with simple, easy to understand answers to your complex business questions. Schedule your initial consultation by calling (650) 701-7617 today.