For someone who is starting a business, deciding on the business structure is of optimal importance. The business structure you choose determines a variety of factors that will affect your business as long as it is up and running or until the structure is changes. For residents of California, there are six choices they must consider when starting business.
The business structure affects the taxes that must be paid by the business. It affects what types of paperwork you must file for your business. It also affects how much of a personal liability you have in the investments into your business.
The six types of business structures in California are the corporation, the limited liability company, the limited liability partnership, the limited partnership, the general partnership and the sole proprietorship.
A corporation is owned by shareholders and operates under a board of directors. Shareholders don't have any personal liability in the corporation.
A limited liability company offers liability protection to the owners. It can be considered a corporation or a partnership for tax purposes.
A limited liability partnership has a measure of personal liability protection. The partners must each be licensed by the state in law, architecture or public accountancy.
A limited partnership consists of at least two people. At least one person manages the business while at least one is a passive investor. The active manager has more liability than the passive investor.
A general partnership consists of at least two people. Both people have equal liabilities and protection from liabilities. Income is treated as personal income for the partners.
A sole proprietorship consists of only one person who has total control over the business. The owner is responsible for taxes and liabilities but enjoys all profits.
As you can see, there are very specific points for each business structure. Working with someone familiar with business structures in California can help you to determine the best one for your needs.Our San Jose business formation lawyers would be happy to discuss your business when you contact us for a consultation.
Source: Governor's Office of Business and Economic Development, "Choosing a Business Structure" Dec. 02, 2014