So, You Want to Start a Business.

When starting a business, one of the most crucial determinations is deciding how your business will be structured.  Choosing the proper business entity will help you achieve your goals and save you time and money in the future.   There are several different business organizations in California, and each business owner should decide which structure will be the most successful choice for his or her business.  Listed below are some of the most common business entities.  It is wise to consult with your accountant and your attorney to ensure that your business and personal assets are protected.

Sole Proprietorship:  A sole proprietorship is the most basic and least formal business entity.  A sole proprietorship is owned by one person, typically the person who will run the day to day activities of the business.  A sole proprietor has full control over his or her business, and the right to keep all profits earned (which are then reported on the individual’s personal tax return).  Sole proprietors are also liable for any and all debts incurred by the business and are personally liable for any potential lawsuits.  A sole proprietor would most likely have to use his or her personal assets to satisfy business debts.

General Partnership:  A general partnership is formed by two or more partners who share in the responsibility of operating and managing the business.  It is similar to a sole proprietorship in the areas of taxation and liability, and is most successfully governed by a partnership agreement.  Control and profits are typically divided equally, unless otherwise specified in the partnership agreement.

Limited Partnership (and Limited Liability Partnership):  As indicated by its name, the limited partnership differs from a general partnership with regard to the varying levels of investment, control, and liability. 

Limited Liability Company (LLC):  A limited liability company is a business structure that combines the tax benefits and structural flexibility of a partnership with the liability protection of the more complex corporate structure.  Organized by filing Articles of Organization with the state, an LLC is governed by an operating agreement, which is entered into by the members (or “owners”) of the LLC.

Corporation:  The most complex and formal business entity is a corporation.    A corporation is a separate legal entity that may outlive its founders.  Forming a corporation lends credibility to a business, creates permanence in a field and protects personal assets, as long as corporate formalities are followed.  A corporation is formed after filing its Article of Incorporation and is governed by corporate Bylaws.  Again, consult your accountant and attorney to see if a corporation is the right entity for you and your business.

Post written by:  Matthew Wheeler

 

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