Operating your own California business is an exciting prospect. Before diving in and filing the paperwork, consider taking some time to look at business structure options. The importance of this step is often overlooked, and many business owners wish they paid more attention to this detail of their company. We frequently assist clients with questions regarding corporate and limited liability company structures.
According to The California Governor’s Office of Business and Economic Development, the business entity that works best for your company depends on several factors.
Recordkeeping and paperwork costs associated with partnerships and sole proprietorships are much less than those that come with LLCs and corporations. However, this should not be the only factor you contemplate when selecting the structure. If there are multiple owners, you may need more protection than a partnership can offer in the event of financial issues or litigation.
Business owners whose priorities include minimizing taxation can benefit from an LLC or corporation. Both are tax neutral when compared to an unincorporated business (i.e., sole proprietorship). S corporations and C corporations have different benefits, including deductions, from LLCs.
Think about what your business could look like three, five or even 10 years from now. What happens if you die unexpectedly? Do you want your share of the company passed down to family members or sold? Do you want stockholders for further expansion? Some business entities limit your options, so looking to the future can help you establish the right foundation today.
A sole proprietorship or partnership may not provide the legal protection you need if the potential for liability is high. Protecting personal assets in a lawsuit is one of the main reasons business owners choose a corporate structure.
Other considerations include, who makes the management decisions, the liability of business debts and the duration of the company if you depart. A corporation or LLC structure may provide the flexibility you need better than other options.