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How to structure your cannabis company is one of the first and most important decisions to make in planning for business operations. The most advantageous form for the business will depend on several factors. They include such things as what your long-term objectives are for your company, how you wish to protect yourself from legal liability, how many owners the business will have, who you wish to have decisions-making authority, and tax considerations.
McElfresh Law has extensive background assisting California marijuana industry entrepreneurs through all the steps of starting cannabis businesses. We can help you determine the most beneficial formation for your new company. We can also assist you in changing formations if you are an existing cannabis business.
To arrange a time to speak with cannabis business entity formation lawyer Jessica McElfresh, call (858) 756-7107 today. She brings years of experience at the forefront of the state’s burgeoning legal marijuana industry to advising clients in all aspects of successfully starting and running their businesses.
What cannabis business you can open will depend on your personal interests and knowledge, as well as zoning and licensing regulations in the area where you wish to set up shop. Types of cannabis businesses catering to medicinal or recreational use include those focusing on:
Some businesses operate in more than one of these areas. Depending on the type of business you open, you may need more than one license.
Corporate formation options include limited liability companies (LLCs), corporations, partnerships, and sole proprietorships. What structure is best for you depends on your goals for your company and all of its business-specific features.
In choosing a structure, discuss with your attorney where you would like your business to be in the short-term and in 10 or 20 years. Would you like to stay small, or do you see your business growing and employing a large number of people?
These are just some of the things that a cannabis business entity formation lawyer can help you think through to arrive at the best decision for your business.
Limited liability companies are run by members (owners) and provide limited liability protection while also being easier to form and less structured to operate than corporations. LLCs can be an attractive option for small marijuana businesses. You can convert your LLC to a corporation if it makes sense to do so as you expand in the future.
Corporations are owned by stockholders with voting rights. Setting up a corporation when starting out could have advantages depending on your overall situation. There are two general types of corporations: C-corporations and S-corporations, which have a limited number of shareholders.
They both offer tax advantages and liability protections but do not operate in the same way. Our lawyer will counsel you on whether forming a corporation may be beneficial for you to convert from an existing LLC or as you start your new business.
General partnerships and sole proprietorships, while being simpler and less expensive and complicated to set up, are often not recommended as structures for marijuana-related companies. Without any liability protection, you are at high risk of losing your personal assets if you are sued or pursued by creditors.
A limited liability partnership or LLP, on the other hand, offers some protection. In this structure, partners have limited liability so they are not responsible for other partners’ debts or legal liabilities.
Taxes and how business ownership is set up and control are also important considerations for many people in choosing a business entity.
LLC’s and corporations both offer tax advantages. Both LLC’s and S-corporations have pass-through taxation, meaning company owners pay individual taxes on business income. Sole proprietors and partnerships report business income, losses, and deductions on their personal income tax forms. C-corporations pay tax on business income.
In selecting a business formation think about how you want the company to be legally and financially controlled. What level of control do you want to maintain for yourself? Do you want to share responsibility with a partner or other members? Or leave the most important decisions up to a board of directors and company officers?
McElfresh Law will guide you in considering all aspects, advantages, and disadvantages of your marijuana business formation.
As with other areas of starting and running a marijuana-related business, you will enjoy many advantages when you consult with a cannabis lawyer for entity selection right from the start. Your lawyer will ensure that you choose the most beneficial entity for your business now and for your future growth.
Attorney Jessica McElfresh has a longstanding focus in helping cannabis businesses in the state start up and thrive. This dedication to the industry means she stays well-informed about changes to local, state, and federal marijuana rules, laws, and regulations. This means you as a cannabis business owner will always receive the most up-to-date and knowledgeable guidance for your situation.
The cannabis industry is not like other industries. The nature of the product itself, which is still illegal for all uses federally, brings an added layer of regulations and complexities that must be carefully navigated. Add all of this up and you can see that you need a lawyer who knows the cannabis industry and who has been heavily invested for years in helping clients in this growing industry achieve success.
Start out on the right foot with your business. Contact McElfresh Law for effective advice about structuring your cannabis business, or for any other concerns you have about legal marijuana operations in the state.
Call (858) 756-7107 today to arrange a consultation.
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