Three Reasons to Form an Entity for a Business
One of the most important decisions you will make as an entrepreneur is how to structure your business. Forming an entity like a limited liability company (LLC) or corporation can provide significant benefits. Below are three reasons to form an entity for your business.
1. Limited Liability Protection
In California, if you operate your business as a sole proprietorship or general partnership, your personal assets, such as your home and savings, are at risk if your business faces a lawsuit or incurs debt. By forming an entity like an LLC or corporation for your business, you create a legal distinction between yourself and your business. Although there are circumstances when the limited liability protection “veil” of an LLC or corporation can be "pierced," the owners of the business entity (the members of an LLC or shareholders of a corporation) are generally not personally liable for the business’s debts, obligations, or other liabilities.
2. Professionalism
A business that is structured as an LLC or corporation can appear more professional and legitimate to potential clients, customers, and business partners than a sole proprietorship or general partnership. Organizing your business as an LLC or corporation shows that you are serious about your business because you took the time to legally structure and register it with the state.
3. Easier Access to Funding
While raising capital for a business is almost never easy, it is easier to raise money for a business that is structured as an LLC or corporation. Investors typically only invest in an LLC or corporation because these entities allow the investor to acquire an interest in the business in exchange for investing money. So, a business that is structured as an LLC or corporation often has easier access to financing options.
The Parsa Firm, APC is dedicated to helping entrepreneurs navigate the complexities of business formation in California. The firm can help you choose the right entity for your business and form that entity in compliance with applicable laws.
The text above is intended for informational purposes only and is not legal advice. Before making any decisions about formation of a business entity, you should seek the advice of an attorney and tax professional.