By: Doug Bend
If you are planning to open up more than one location of your business in California, you have two options to consider.
(1) Only Have One Legal Entity For Multiple Locations.
You could update the city business license for your existing legal entity to operate the additional locations.
The advantage to this approach is you would save $3,000 to $4,000 a year by not having to pay duplicative costs for a separate legal entity. For example, you would not have to pay your CPA to file a separate tax return or pay California the annual franchise tax for multiple entities.
The disadvantage to this approach is if you operate multiple locations under the same legal entity if something happens at one location it could put in jeopardy all of the assets that are in the same legal entity from your other locations.
(2) Have a Separate Legal Entity for Each Location.
The second option is to have a separate legal entity for each location.
The drawback to having a separate legal entity for each location is you would have the expense of maintaining each entity.
The advantage is the assets from each location would be held in separate and distinct entities. As such, it might be more difficult for a successful plaintiff to get at the assets of all of your locations if something were to happen at one location.
In addition, you could give key employees and advisors equity in the location they are adding the most value too instead of equity in your entire company. For example, you may want to give your store manager in San Francisco equity in an entity for that location and not equity in one entity that runs locations in other parts of California as that manager has very little to do with those other locations.
Please feel free to contact us at info@BendLawOffice.com if you would like to chat through the advantages and disadvantages of having multiple legal entities as you grow your business.
The information provided here is not legal advice and does not purport to be a substitute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.