Business Law Services in California

Most business law problems are tax problems that have not been recognized yet. How an entity is formed determines what it pays every year. How a contract characterizes a payment determines how it is taxed. How a sale is structured determines whether the seller keeps a meaningful share of the proceeds.

Our practice approaches business matters from that direction. The firm is led by a tax attorney with an LL.M. in Taxation, which means the tax consequence is considered when the decision is made rather than discovered when the return is prepared.

We represent businesses throughout Temecula, Murrieta, San Diego, Riverside, San Bernardino, and Orange County.

Formation and Structure

Entity choice is the decision with the longest tail. In California it is driven less by liability — LLCs and corporations both provide it — than by entity-level charges that apply regardless of profit.

An LLC owes $800 annually plus a gross receipts fee charged on revenue rather than profit, reaching $11,790. An S corporation owes the greater of $800 or 1.5% of net income. A C corporation owes 8.84%, but only C corporation stock can qualify for the qualified small business stock exclusion. And corporations are exempt from the minimum franchise tax in their first year while LLCs no longer are.

Our business formation page compares the options in detail, and sole proprietorships and nonprofits have their own considerations.

Structure work does not end at formation. Businesses outgrow their original entity, add owners, separate real estate from operations, or need a holding company. Each restructuring carries tax consequences — built-in gains, holding period resets, and QSBS eligibility among them — that are far cheaper to plan than to unwind.

Governance and Ownership Agreements

The documents that matter most are the ones nobody reads until there is a dispute.

Operating agreements and bylaws govern authority, voting, distributions, and what happens when an owner leaves. California does not require an LLC to have a written operating agreement, and absent one the statutory defaults apply — rules written for no particular business and rarely matching what the owners intended.

Buy-sell agreements determine what happens on death, disability, divorce, bankruptcy, or a decision to exit. The provisions worth negotiating early are valuation method, funding mechanism, and whether a buyout is mandatory or optional. These are straightforward to agree on before there is money at stake and nearly impossible afterward.

Corporate formalities — meetings, minutes, resolutions, a maintained stock ledger, separate accounts — are what stand between the owners and a veil-piercing argument, and what distinguishes a genuine shareholder loan from a disguised dividend.

For closely held businesses where the same people are owners, directors, and officers, these documents feel like paperwork. They become the entire case when a relationship breaks down.

Contracts

Contract review is where tax and business law overlap most directly, because characterization drives treatment.

• Independent contractor agreements — California’s ABC test under AB 5 controls classification, and misclassification produces EDD assessments for unpaid payroll taxes with penalties and interest. The agreement’s label does not control; the working relationship does.
• Purchase and sale agreements — allocation of purchase price among asset classes determines ordinary income versus capital gain treatment for the seller and the depreciation schedule for the buyer
• Licensing and royalty arrangements — characterization affects sourcing, and for multistate businesses, which state gets to tax the income
• Leases — related-party leases between an owner and their business need arm’s-length terms to survive examination
• Employment and compensation agreements — deferred compensation carries Section 409A exposure, and equity compensation has its own timing and valuation rules

The recurring pattern is that a term negotiated for business reasons carries a tax consequence nobody priced. A payment characterized as a consulting fee rather than goodwill, or as a covenant not to compete rather than purchase price, changes the tax outcome substantially for both sides.

Transactions

Buying or selling a business is the transaction where structure matters most, and where the difference between an asset sale and a stock sale can move the after-tax result by a wide margin.

California adds a step most sellers do not anticipate: four separate agencies — CDTFA, EDD, FTB, and the county tax collector — issue clearance certificates in a business sale, each with its own form and timeline. Without them, a buyer can inherit the seller’s unpaid tax liability as a successor, up to the purchase price. Our page on buying or selling a small business covers the sequence.

Transaction work also includes due diligence — reviewing the target’s tax filings, entity standing, worker classification history, and open examinations. A target with a suspended entity or an unresolved CDTFA audit is a materially different purchase than its financial statements suggest.

Compliance and Good Standing

The most common business law emergency we see is not a lawsuit. It is a business discovering mid-transaction that its entity has been suspended or forfeited by the Franchise Tax Board for unfiled returns or unpaid balances.

A suspended entity cannot conduct business, defend a lawsuit, or enforce its contracts, and contracts entered while suspended may be voidable. Revivor requires filing the delinquent returns and paying the balance — which takes time the closing schedule usually does not have. See unfiled returns.

Ongoing obligations that keep an entity current include Statements of Information, the annual franchise tax and any applicable fees, employment tax registration and filings once wages reach $100 in a quarter, a seller’s permit where tangible goods are sold, and local business licenses in each city of operation.

On beneficial ownership reporting: under FinCEN’s March 2025 rule, domestic entities are exempt and only foreign reporting companies must file. See Corporate Transparency Act.

Disputes With Tax Consequences

Business disputes carry tax implications that are frequently overlooked in settlement negotiations.

The characterization of settlement proceeds determines their treatment — lost profits are ordinary income, damage to a capital asset may reduce basis instead, and punitive damages are generally taxable. A settlement agreement that allocates expressly, with a defensible basis, gives both parties a far stronger position than one that is silent.

Deductibility runs the same way. Ordinary and necessary business expenses are deductible; fines and penalties paid to a government generally are not. Where a settlement mixes categories, allocation matters.

Partnership and shareholder disputes carry their own issues — a buyout can be structured as a redemption by the entity or a purchase by the remaining owners, with materially different tax consequences to everyone involved. That choice belongs in the negotiation, not after it.

Real Estate Held by a Business

For many Southern California businesses the most valuable asset is the property they operate from, and how it is held affects taxes, liability, and eventual sale.

The common structure separates real estate into its own entity that leases to the operating company. The advantages are genuine: the property is insulated from the operating business’s liabilities, it can be sold or retained independently, and rent creates a deductible expense to the operating entity and income to the owner.

The requirements are equally real. The lease must carry arm’s-length terms and be documented, because a related-party lease at an implausible rate is recharacterized. Rental income may be passive, limiting the owner’s ability to use losses against active income. And Proposition 13 reassessment turns on change in ownership — transferring property into an entity, or transferring interests in an entity holding property, can trigger reassessment to current market value even where no third party is involved.

That last point is the expensive one. A property carrying a decades-old assessed value can see its tax bill multiply after a restructuring undertaken for entirely unrelated reasons. The change-in-ownership rules for entity-held property are technical, and the analysis belongs before the transfer.

Frequently Asked Questions

Why use a tax attorney for business law matters?

Because most business decisions have a tax consequence that is cheapest to address when the decision is made. Entity choice, contract characterization, and deal structure all determine tax outcomes that cannot be changed at filing.

Do I need an operating agreement in California?

It is not legally required, but without one the statutory defaults govern — and they rarely match what the owners intended on distributions, management authority, or what happens when someone leaves.

What happens if my entity is suspended?

It loses the right to conduct business, defend a lawsuit, or enforce its contracts, and contracts entered while suspended may be voidable. Revivor requires filing delinquent returns and paying the balance.

Does my independent contractor agreement protect me from reclassification?

Not by itself. California applies the ABC test to the actual working relationship. A well-drafted agreement helps, but the facts control, and misclassification produces EDD assessments with penalties.

Do I still need to file a beneficial ownership report?

Not if the entity was formed in the United States. FinCEN’s March 2025 rule exempts domestic entities; only foreign reporting companies file.

Should I form my business in Delaware?

Only if you are raising institutional capital that expects it. A business operating in California must register and pay here regardless of where it was organized, so out-of-state formation usually adds cost without removing any.

When should I involve counsel in a transaction?

Before the letter of intent, if possible. Structure — asset versus stock, allocation, earnout terms — is negotiated early and is difficult to revisit once the framework is agreed.

Business Counsel With the Tax Question Built In

The value of combining these disciplines is timing. A tax consequence identified during negotiation is a term to be traded. The same consequence identified at filing is simply a cost.

Pietro Canestrelli holds an LL.M. in Taxation and advises businesses on formation, governance, contracts, transactions, and compliance, alongside representation before the IRS, FTB, CDTFA, EDD, and the Office of Tax Appeals. Schedule a consultation, or review our corporate tax and entity formation services.