Every business, regardless of size, is vulnerable to common legal pitfalls that can lead to unnecessary liability and financial loss. Drawing on over 140 years of collective legal experience, Branfman Mayfield Bustarde Reichenthal LLP offers 10 tips to avoid critical legal mistakes that frequently plague businesses. It’s a lot of information to share and so we will spread it out over a series of posts. Errors that can be avoided range from improperly choosing a business entity to failing to document crucial agreements or maintaining corporate formalities. By recognizing and addressing these risks, business owners can protect themselves, their companies, and their future success. These tips aim to arm you with the knowledge needed to avoid these pitfalls and thrive in today’s complex business environment.
TIP #1: Start Smart
Want to set your business up for success? Avoid the common legal mistake of skipping professional consultation when choosing your business entity. It’s a critical step that can save money and liability headaches later. This is just one of the 10 biggest legal mistakes businesses make—don’t let it trip you up! Stay tuned for the next tip, or check out the full list now.
California recognizes numerous forms of business entities, each with important distinctions. The six major forms of business entities are sole proprietorships, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, and corporations. Corporations are by far the most popular form of business entity and are unique because of the many types of corporations, such as, “C” Corporations, “Sub-Chapter S” Corporations, Professional Corporations, Non-Profit Corporations, etc.
A tradeoff occurs between adhering to special statutory formalities, thereby limiting personal liability, and maintaining management and control of the business. Additional considerations, such as, availability of capital, continuity of existence, and taxation, also play an important role in choosing the business entity. Generally, as the formalities increase, personal liability and management and control of the business decrease. Thus, a sole proprietorship enjoys very few administrative formalities, maintains full management and control of the business, but will be personally liable for the wrongs of the business.
By consulting with competent legal counsel prior to forming or changing the business entity, its owners will be apprised of the best form of business entity for their circumstances. Likewise, consulting with an accountant may save a business and its owners thousands of dollars in taxes.