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Bankruptcy filing puts business formation under public scrutiny

The legal form a business should take is often not the most attractive thought for an entrepreneur in California, but the right plan for a commercial entity is one of the earliest and most important decisions to make. The legal form of a business dictates how it is run, who can manage it and how its proceeds are taxed.

The recent bankruptcy filing by a California utility giant has brought the form and responsibilities of business entities back into more public attention. Large companies with substantial public responsibilities are often different from other business enterprises because there are some implicit duties beyond those to a shareholder or a company’s employees.

Regulatory compliance is always important to business operations — since any regulatory problem can lead to a suspension or closure. Some experts are contending that the utility’s recent bankruptcy is related to the regulations some companies must observe versus the risks they are forced to take by a marketplace different than many competitive landscapes.

Many people affected by public hazards allegedly caused by the utility’s previous performance will not be resolved by the bankruptcy. Some consultants believe a simple change in the form of the utility’s operations will not affect the environment that led to disaster, and it could lead back there.

No matter the size of a business or its goals, the planning that goes into founding a new enterprise is very important and consequential to the rest of its lifespan. An attorney can help business founders secure their future plans with the right legal form of a business and its operations.