Corporate Formation

This article is about how to approach the question of forming a new entity.  Many wonder what the steps are to forming a new entity and what questions should be considered. This list should not be seen as the complete list of questions but rather an approach. I would be happy to discuss your particular situation.

  1. Picking an Entity Type
    • Do you already have an entity?  Are there problems? Read about common issues.
    • Have you maintained the “corporate formalities” to be able to argue that the entity protects the individual owners from certain liability?
    • Are you in a regulated industry such as the financial industry, health care or do you store customer data in the EU?
    • Where do you do business? Where are your customers? Your officers and directors?
  2. Common Entity Types: The tax goals, liability issues or issues regarding jurisdiction (i.e, how much risk of being sued in a specific state are you willing to take?) often dictate the entity forms.
    • Delaware entity that is qualified to do business in another state
    • Delaware entity only qualified to do business in Delaware – often as a holding company
    • A California entity only qualified to do business in California
  3. Filing Process and Timing
    • Each state has its own one-time filing and annual fees
    • If you are forming an entity in Delaware, filing can happen almost in one day
    • California takes as long as 7 to 10 business days and a statement of information must be filed within a reasonable period of time (e.g. 90 days) after formation
    • New York requires publication in a News Paper
    • Appointment of a Registered Agent: We recommend that a Registered Agent be appointed – such as Corporation Services Corporation.  They charge an annual fee.
    • If you use a different name than your entity name to conduct business, you will ALSO have to file a fictitious business name in the county (or counties) where you (or the entity) operate(s) your business.  Each filing has a filing fee and most require publication so check with your local county rules, or ask me.
  4. Shareholder and Operating Agreements: 
    • One of the most important parts of forming your entity is the agreement between the owners.
    • Depending on whether you form a C corporation or an LLC, you will have a shareholder (for C corps) or operating agreement (for LLCs)
    • The most common error I see is 50/50 ownership with no mechanism for resolving deadlocks.
  5. Fees: I often do formation work for a flat fee and have various packages depending on the particular issues presented by your entity and arrangement.

For more discussion on corporate formation services, please write or give me a call at 310-570-2399