Before the Grand Opening: Structuring Your New California Business

January 05, 2012

Before the Grand Opening: Structuring Your New California Business

You have decided to start your own business in California. California law provides for several different types of legal entities to choose from when establishing your business like sole proprietorship, corporation, limited liability company or partnership. The decision of which type of entity will best meet your personal and business needs is extremely important and can make a huge difference in your future bottom line.

The type of legal entity of your business can affect important matters such as personal liability, decision-making power and taxes.

The California Secretary of State website provides helpful information to the public about business entities and requirements, but we provide a basic overview of the main types here:
-Sole proprietorship: A sole proprietorship is the most basic and traditional business type owned and run by an individual or married couple. The owner normally makes decisions, incurs all liability (including taxes) and is entitled to all profit.

-Corporation: A corporation is a perpetual legal entity set up under state law that itself incurs the business and tax liability of the commercial enterprise. Corporations raise capital by selling stock in the company to shareholders, who in turn elect a board of directors to exercise management control over the business.

-Partnership: A general partnership forms when at least two people join together to run a commercial enterprise. Partners are usually responsible for debts and liabilities of the partnership, and are the personal recipients of business profits (and resulting income tax liability). Variations on the general partnership are the limited partnership and the limited liability partnership.

-Limited liability company: An LLC is an association of members or managers who run the business according to an operating agreement with only limited personal liability for business debt (usually limited to a member's financial contribution to the business). The LLC itself will have some tax liability.

Each entity type may have different federal, state and local start-up, ongoing and winding-down requirements pertaining to:
-Legal document filings
-Recordkeeping
-Assumed business names
-Licenses
-Taxes

Any California entrepreneur starting a business -- regardless of the size or type of the anticipated business -- needs the informed advice of an experienced business attorney to learn about the advantages of the different business entities available in the state. A knowledgeable lawyer can also assist in sole proprietor, partnership, LLC or corporation formation in compliance with the many detailed government requirements.

Article provided by Law Offices of Rick Aljabi A Professional Law Corporation
Visit us at http://www.aljabilaw.com