Time to Incorporate and Start Your San Diego Businesses

By all reports, the economy is doing well and small business confidence and optimism is at an all-time high. For the last 45 years, the National Federation of Independent Business has been charting an “optimism index” for small businesses and the index has hit an all-time high. See report here.

The NFIB expects the business optimism to lead to new hiring, increased wages and compensation, more capital investments, and higher R&D spending. The business environment has also led to a significant jump in new business starts. Maybe now is the time to start your San Diego business. Your first step is to find a business entity that best fits your needs. A good San Diego corporate lawyer can help and can provide all the other legal services you need. Here is a quick list of why you need to incorporate.

San Diego Corporate Law: Incorporate to Get Financing and Attract Investors

It is easier to get lender financing and attract investors if you have incorporated and are running your business as an “Inc.” or “LLC.” This is not to say you cannot get financing or attract investors without incorporating, but lenders and investors have certain expectations, one of which is that the business is running as a corporate entity. Incorporating indicates a level of seriousness. Furthermore, failure to incorporate is associated with either lack of funds/revenue (we cannot afford the cost of incorporating) or lack of savvy. Either trait will sour investors and lenders. In addition, without the corporation, any financing will be based on your own personal assets and income, which not is advisable.

The issue of lack of savvy is also relevant to suppliers, vendors, and customers. As some point, being “in business” means being “a business” which means being an “Inc.” or an “LLC” (or other corporate form).

Protecting Personal Assets

Just as importantly, without the corporate entity, your personal assets are at risk if the business fails. This goes hand-in-hand with the idea that without the corporate entity, your financing and investor monies are based on your own personal income and assets. You do not want that; you want business money and assets to be at risk for business debts and obligations. This is NOT about avoiding paying your debts, but about other types of liabilities that are accidental or beyond your reasonable control. Think slip and fall accidents or an accident in the company vehicle. As hard as you may try to put policies in place to avoid tragic events, sometimes accidents happen. You do not want a judgment to be collected against the equity in your personal residence. Obviously, hazard and general liability insurance is crucial, but sometimes the judgment exceeds the insurance coverage and, again, you want business assets at risk for business losses and liabilities.

Planning for “Cashing Out”

A recent trend in startup businesses is the idea of “cashing out” quickly. Get the business up and running, get the revenues streaming and then “cash out.” There is no way to do that unless you have incorporated. The corporation becomes a separate legal entity from yourself and you cannot “cash out” yourself; you can only “cash out” a corporate entity.

Even if you plan to run your business for many years — like a family-run business — the corporate entity is still important for estate planning and generational dispersal of the achieved wealth. That is, the kids and grandkids can be gifted stock or ownership units, but such can be done without giving up management control.

Contact San Diego Corporate Law Today

There are many other reasons to incorporate, and if you want further information, contact attorney Michael Leonard of San Diego Corporate Law. Mr. Leonard provides a full panoply of legal services for San Diego and California businesses including corporate entity formation and annual maintenance. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard can be reached at (858) 483-9200 or via email.

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