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Dispelling Business Formation Myths

The Heritage Law Group April 14, 2023

Starting a new business can be an exciting, yet challenging, endeavor. Choosing the right business structure, drafting the required contracts, filing necessary taxes, and applying for permits and licenses are crucial to make sure you start your business on a solid legal footing. When establishing a new business, getting experienced guidance is essential to make informed decisions and avoid costly mistakes. 

With more than 55 years of combined experience, our team at The Heritage Law Group is ready to advise and guide clients in the legal matters of business formation. Our California business law attorneys can help you understand the business formation process and clarify any misconceptions. With offices in San Jose, California, and Houston, Texas, we proudly serve clients throughout Northern and Southern California, as well as Fort Bend County and Montgomery County in Texas. Set up a one-on-one consultation with us to get started. 

Common Misconceptions & Concerns When Starting a Business 

There are many collective popular views out there surrounding the business formation process. Not all of these views are based in reality. As such, business law attorneys must educate clients about the procedures involved in starting a new business and how to navigate the early development stages of their new enterprise. Here are some of the most common misconceptions about business formation and why they're not true: 

Myth #1: Choosing a business entity is only important for large businesses. 

This is a common misconception. Whether you are starting a small, medium, or large business, choosing a business entity is crucial. In fact, this will determine the legal structure and other aspects of the business. Your business entity will also determine the amount of personal and business assets which will be exposed to potential liability and whether you can raise funds. 

A corporation allows the business to raise operating funds by selling shares. A Limited Liability Company (LLC) or corporation offers more protection against personal liability. Sole proprietorships and partnerships must raise capital through personal savings, and there is minimal liability protection for such businesses. 

Myth #2: You won't have to pay taxes if you form an LLC in another state. 

This is not true. You may be tempted to form your LLC in a "tax haven" state. Regardless, you're still under obligation to pay your taxes in the state where your business operates. Even when your business's physical location is in Nevada or Wyoming, but your business operations and employees are in California or Texas, you must fulfill your tax obligations for the transactions performed in the state. You must also adhere to the employment laws of the state where your employees are based. 

Myth #3: You have to be a U.S. citizen to own/operate an LLC. 

This is another common misconception. As a foreign company or non-U.S. resident, you can form or operate an LLC or corporation in the country. There are no laws that restrict a non-resident from doing business, owning, or operating an LLC. However, to avoid potential issues or sanctions, you must adhere to the established guidelines and procedures to form an LLC in your preferred state. 

Myth #4: A sole proprietor can't have employees. 

This is not true. A sole proprietor can hire employees to assist with various business operations. In fact, a sole proprietor can hire many employees. As the employer or sole proprietor, you will manage the daily business activities, file taxes, and coordinate your employees. 

Myth #5: LLCs cannot be publicly traded. 

It is true that trading a limited liability company (LLC) publicly is impossible. Also, unlike C or S Corporations, LLCs are not allowed to issue stocks. However, LLCs have a flexible tax structure, and the business can file taxes as a partnership. This may make it possible to raise capital or funds by selling part of the LLC to family members and friends or on a securities exchange. 

Myth #6: You don't need an attorney to help with business formation. 

There are many complex procedures involved in business formation. A potential business owner may not know exactly how to choose a business entity or register the business. An experienced business law attorney can help handle all the necessary steps in starting a business and help draft and review contracts. Additionally, your legal counsel can help apply for tax identification numbers, licenses, and permits, and ensure that you establish a solid foundation for your business. 

Understand the Facts Before Making Decisions  

Forming a new business is a huge decision. Before embarking on your new venture, it is important that you understand the facts and processes involved. At The Heritage Law Group, we have devoted our careers to offering experienced legal services and guiding clients through the complexities of business formation. As your legal counsel, we can work to understand your personal goals and help you choose the right structure for your new business. Ultimately, our attorneys will strive to set up your business for long-term success. 

Contact us at The Heritage Law Group today to schedule an initial consultation with business law attorneys. Our lawyers are here to assist you at the development stage and other phases of your business. We're proud to serve clients throughout San Jose, California, and Houston, Texas, as well as Northern and Southern California, Fort Bend County, and Montgomery County.