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.
- 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?
- 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
- 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 the 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.
- 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.
- 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