Starting a new business venture is an exhilarating experience, but is also rife with potential risks and pitfalls. Hence, it is so important to conduct a level of due diligence to ensure the business is worth your time and effort. There are a variety of services available online that assist entrepreneurs in creating a business. However, simply filing the paperwork to starta business is just the first step in a fairly lengthy and arduous process. It is also just the first step in a journey that could ultimately lead to your business growing to the point where you take it public or decide to exit from the company.
Benefits of Forming a Limited Liability Company
An extremely popular business entity utilized by an array of entrepreneurs includes the limited liability company (i.e. LLC).The LLC is often utilizedfor new businesses because it offers numerous benefits, including:
- LLCs have less corporate formalities and are more flexible entities than corporation in terms of structuring;
- LLCs provide a level of legal protection for the business owners due to the limitations on personal liability; and
- LLCs are not subject to double taxation (unlike most corporate entities).
Potential Pitfalls
Despite the many benefits offered by forming an LLC, there are certain risk and potential pitfalls associated with an LLC, if a business owner, or owners, do not consider specific issues and variables that may arise down the road. Deciding whether to create an LLC should be carefully weighed against your overall objectives with the company, such as:
- whether equity would be issued to investors or employees;
- whether you are looking to eventually secure institutional financing; and
- whether the long-term plan is to take the company public.
Questions to Ask
If you want to proceed with creating an LLC, it is extremely important to invest the necessary time and resources in drafting the Operating Agreement, and if more than one member, having appropriate buy-sell provisions within the Operating Agreement. Here is a list of important questions you need to have answered before moving forward with forming an LLC:
- Are you going with a member-managed LLC o manager-managed LLC?
- How will you allocate the membership interests?
- How are you planning to finance the business?
- How will capital calls be determined and what happens if a member cannot satisfy a capital call?
- Where will the LLC be established (i.e. which state)?
- Is there is a protocol in place for new members to be admitted?
- Who will be empowered to manage the LLC?
- Can LLC interests be sold to third parties?
- Do you have a plan in place for how to repurchase a member’s interests in the business if they leave, become disabled, or become problematic?
The above questions are complex and not easy to answer. Thus, it is in your best interest to discuss all aspects of starting a company with an experienced Los Angeles business lawyer such as Afshin Hakim of the highly reputable Hakim Law Group. The level of diverse legal and business expertise that the professionals at Hakim Law Group attain is what sets HLG apart from the competition. For further information or to schedule a consultation please contact Hakim Law Group at (310) 993.2203 or visit www.HakimLawGroup.com to learn more.