What Type of Business Entity is Right for Your Business?
When starting a business or expanding an existing company, it is imperative you select the right type of business organization. There are different options available, each with their own pros and cons.
Choosing the type of business entity that is right for your business is a complex process. An Irvine business law attorney at Brown & Charbonneau, LLP can provide you with the legal advice that you need to make the right choice. The decision you make can affect how you are taxed, your paperwork requirements and ongoing costs, and the liability protections you have. Don’t make such an important choice without getting the information you need from a qualified legal professional.
What Type of Business Entity is Right for Your Business?
When choosing a type of business entity for your business, your primary options include:
- Sole proprietorship. If you want a simple business form with no ongoing paperwork obligations, this may be the right choice. If you have all necessary professional and business licenses (if required), you can simply begin operating a sole proprietorship. You are the same legal entity as your company when you operate this way. Business income and losses are declared on a personal tax return; you are responsible for all debts and judgments; and a business bankruptcy is equivalent to a personal bankruptcy.
- Partnership. A partnership is a very simple business form for those who want to run a business with others. You will need a partnership agreement to protect everyone’s interests, but no other ongoing forms or paperwork are required. Partners are personally liable for all business debts and for judgments against the company, and partners declare profits and losses on personal returns.
- Limited liability company (LLC). An LLC provides liability protection and creates a separate legal identity for your business. You must file paperwork with the California Secretary of State to operate as an LLC. There are paperwork requirements and costs that you are subject to with an LLC that are not required for sole proprietorships or partnerships. Income and business losses pass through to business owners.
- Corporation. Forms also must be filed with the Secretary of State and you have ongoing paperwork requirements and costs. There are different types of corporations including an S-corp and a C-corp. If you wish to operate as an S-corp, you must file an S-corp election form with the IRS. There are more restrictions on S-corp ownership than on C-corp ownership and the entities are taxed differently. C-corps pay business taxes and owners also pay taxes, creating a risk of double taxation. S-corps allow business owners to claim profits and losses on personal taxes. Both S-corps and C-corps provide liability protection.
There are many different things to consider when choosing what type of business entity makes sense for you. Brown & Charbonneau, LLP will discuss the goals of your business and your plans for the future and will help you to determine the best business structure to use. Call today to schedule a consultation and learn how our Irvine business lawyers can help.
