The four horsemen of business entities are C-corporations, Limited Liability Companies, S- corporations and Partnerships. Criterion Law forms business entities to fit the specific business needs of our clients. We guide clients in the initial decision making about which entity to choose, to establish a sound legal foundation for the venture’s launch, progression, and growth. Here at the firm, the client’s business plan dictates the choice of entity. Our counsel and process lead clients to the right legal entity for any enterprise.
Below we have taken the time to briefly outline how each entity functions, as well as some reasons clients would choose certain entities. The list and its descriptions are in no way exhaustive, but rather provide a very simple overview of how clients evaluate their choice of entity.
Often the choice of Silicon Valley startup companies, the C-Corporation has a flexible structure for selling stock to a wide variety of investors and granting options to key employees. The “C” designation refers to the federal income tax treatment the corporation will receive, which is significantly different from that of the “S” Corporation. Depending on the vision for the business, the firm advises clients on whether the C-Corporation’s capital raising and incentive compensation advantages are needed, and whether to file in Delaware or California. The choice to file a C-Corporation is also balanced against the taxes and regulations which govern the C-Corporation.
Limited Liability Company
A Limited Liability Company,or LLC, was invented several decades ago, mainly to provide added legal protection against personal liability to businesses which traditionally functioned as partnerships. Since then, the use of the LLC has matured along with the laws governing LLCs. Today, Criterion Law often advises businesses and investment groups to utilize the LLC for a variety of different reasons including tax structure, relationships between principals of the business, and strategy for growth.
The often misunderstood stepchild of the C-Corporation, the S-Corporation designation merely refers to a different subchapter of the internal revenue code which governs the taxation of a corporation–Subchapter C being the “C Corporation” and Subchapter S being the “S Corporation”. However, the reasons for making an election to file as an S-Corporation are important to explore for the closely held business that will not require access to broader capital markets. The firm provides direction appropriate for the company, which often relates to the projected size of the company and desired tax structure.
Partnerships are generally becoming rare. When two people work together, they sometimes are forming a de facto partnership, whether they know it or not. But the formation of partnerships and partnership agreements are slowly being supplanted by LLCs. Criterion Law offers timely advice on whether formalizing a partnership through a partnership agreement or forming an LLC is the best course of action.
Beyond those described above, Criterion Law has formed professional corporations for lawyers and doctors as well as limited liability partnerships. In California, professional corporations have special rules which apply to stock ownership. For these more specialized entities, the firm carefully guides clients through the considerations required.