Business owners in California have several options for legal business structures, each with its own benefits, depending on the owner’s business goals. The attorney from the Atascadero Daner Law Firm helps business owners understand the pros and cons of each type and assists with all of the necessary forms and filings.
The business structures, or business entities, that can be established in California are:
- Limited Liability Company (LLC)
- Limited Partnership (LP)
- General Partnership (GP)
- Limited Liability Partnership (LLP)
- Sole Proprietorship
The Sole Proprietorship is probably the least complex business type; one person owns and operates the business. If the business name does not include the owner’s name, such as “Mary Smith’s Donuts,” a Fictitious Business Name Statement needs to be filed with the county where the business is located. Depending on the nature of the sole proprietorship, some types of businesses need permits or licenses. A retail business needs a resale permit. A massage therapist must be licensed by the California Massage Therapy Council. Every business needs a business license. Aside from these kinds of requirements, a sole proprietorship does not have to file formation documents with the California Secretary of State.
There tax considerations for each type of business entity, including Sole Proprietorships. A single person might benefit more by establishing a corporation or LLC. A consultation with a business attorney is going to help reach the best decision for opting for one of the following:
- A California corporation generally is a legal entity existing separately from its owners. While normally limiting the owners from personal liability, taxes are levied on the corporation as well as on the shareholders. The sale of stocks or bonds can generate additional capital and the longevity of the corporation can continue past the death of the owners. Legal Counsel should be consulted regarding the variety of options available. Articles of Incorporation must be filed with the California Secretary of State. The shareholders (or single owner) of a corporation have the option to file as an S-Corporation with the Internal Revenue Service. The S Corporation does not pay federal taxes at the corporate level. Instead, the tax liability passes through to the shareholders who report business income and losses on their personal tax returns.
- A California LLC generally offers liability protection similar to that of a corporation but is taxed differently. One or more managers or one or more members may manage domestic LLCs. In addition to filing the applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the LLC and the conduct of its business is required. The LLC does not file the operating agreement with the Secretary of State but maintains it at the office where the LLC’s records are kept.
When two or more people own a percentage of the business as partners, one of the following partnership entities:
- A California LP must have at least one general partner that acts as controlling partner and one limited partner. The limited partner’s liability is normally limited to the amount of control or participation. An LP may provide limited liability for some partners. The general partners of an LP have unlimited personal liability for the LP’s debts and other obligations. Form LP-1 must be filed with the California Secretary of State.
- Two or more persons engaged in a business for profit in order to form a California GP. With some exceptions provided by law, partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed. Profits are taxed as personal income for the partners. Registering a GP with the Secretary of State is optional, but if the partners choose to do so, Form GP-1 must be filed.
- A California LLP is a partnership that engages in the practices of law, architecture, public accountancy, engineering or land surveying. An LLP is also a partnership that provides services to certain other California LLPs or to a foreign LLP. An LLP must maintain certain levels of insurance and Form LLP-1 must be filed with the California Secretary of State.
The Daner Law Firm, a Professional Law Firm (APLC), advises businesses and individuals on matters concerning establishing a business, preparing contracts, landlord/tenant, homeowner association documentation, and real estate and construction matters. He has handled all types of construction claims from the vantage point of developers, general contractors, engineering professionals, material suppliers, and subcontractors.
Adam M. Daner graduated from the University of San Diego School of Law with a Doctor of Jurisprudence degree (J.D.) in 1994 and joined the California State Bar Association that same year. He has been a member of the Nevada State Bar since 2000 and is a member of the San Luis Obispo County Bar Association and the California State Bar.
Daner Law Firm
4555 El Camino Real, Unit J
Atascadero, CA 93422
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