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Types Of Business Entities In California

Updated: Dec 29, 2022

Choosing What Type Of Business You'll Run In California

Now that you have made the decision to launch a business in California, you must now choose the type of business entity to create. Your choice of business entity will impact matters of ownership, taxation, responsibility, and state and federal requirements.

You can sort through these difficulties and choose the organization that will best help you accomplish your goals with the assistance of an experienced California Business Litigation Lawyer.

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Types Of Business Entities In California

You may have a variety of options when it comes to deciding which California business entity to create. You should consider what business you want to operate, how many owners there will be, and how strategic it will be for your taxes.

If you're not sure about it, you should always consult with a California Business Lawyer before making any decisions. That said, here are the types of business entities that you can create in California:

1. Sole Proprietorship

A sole proprietorship in California is a business structure that enables one person to run and own it. A sole proprietor is in charge of the business's taxes and liabilities.

If you're starting a sole propriety business in a name other than the founder's, you should file a Fictitious Business Name (FBN) Statement.

2. Corporation

An independent legal entity from its owners is a California corporation. One advantage of creating a corporation is that it typically protects the owners from personal liability.

Nevertheless, corporate formalities must be scrupulously adhered to maintain this protection. Both the corporation and the stockholders are subject to taxes.

To ensure a smooth formation, have a California Business Law Attorney look through your business plan and potential founders to make sure incorporating is the best choice for you.

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3. Limited Liability Company (LLC)

An LLC business in California provides liability protection similar to that of a corporation, but it is taxed differently. One or more managers or one or more members may be in charge of managing an LLC.

4. Limited Partnership (LP)

Some partners may have limited liability under a California LP. There must be a minimum of one limited partner and one general partner. The dominating partner is the general partner.

Typically, the limited partner's responsibility is constrained by their level of involvement or control. An LP's general partners are personally liable for all debts and obligations of the LP.

5. General Partnership (GP)

A California GP is required to have two or more employees working for a profit. Each partner is responsible for the partnership's debts individually and collectively. For the partners, profits are taxed as personal income.

6. Limited Liability Company (LLP)

An LLP is a partnership that carries out the following activities:

  • Law

  • Accounting

  • Architecture

  • Engineering

  • Land Surveying

In short, an LLP provides facilities or services to a foreign LLP or a California-licensed LLP that does public accounting or law. In addition, an LLP must keep up with specific insurance coverage requirements.

As mentioned, California's business entities affect how they're operated and taxed. As a result, liability can also change depending on your business type.

Some businesses also need to change as they grow or size down. For example, a sole proprietorship may grow and eventually need to incorporate for operations, liability, and tax reasons.

Hence, you want to ensure you choose the best one for your business, your co-founders, and your bottom line.

California Business Law Firm offers an Attorney Referral Service Certified by the California Bar Association. We can refer a Business Litigation Lawyer fit to handle their unique case in California. Contact us via our 24/7 live chat (or complete our case submission form).


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