The Right Business Structure
Launching a business brings decisions — the first which focuses on the type of business you plan to launch. Your business structure dictates the business’s organization, directors, taxes, and liability. Evaluate your possibilities so that you choose the right structure for your new venture.
Limited Liability Corporation
A limited liability corporation (LLC) protects the business’s owner or owners from being held personally liable for the debts of the organization. Because LLCs are not viewed by the IRS as separate entities, the owner or owners of an LLC file their business taxes along with their personal taxes. An LLC can be owned by a single individual or a group, identified as “members,” according to the Small Business Association. LLCs are advantageous for many small businesses because they are relatively easy to launch and manage and do not require separate taxes.
Forming an LLC in California
In California, starting your LLC requires you to file Articles of Incorporation and pay a $70 fee. Other forms may be required and come with additional fees.
A corporation is typically reserved for larger, more established organizations. A group of shareholders own the organization. Because of this structure, the corporation, rather than the individual shareholders, is held responsible for any liabilities or debts. Corporations also pay their taxes as the organization at the federal, state and, in some cases, local level. Two types of corporations exist, with different taxation levels.
A C corporation is subject to double taxing. This means that the organization is taxed on its net income. When these earnings are distributed to shareholders, those profits are taxed again at the individual level.
An S corporation avoids the double taxation of a C Corporation. Profits are dispersed to shareholders, who are then taxed. S corporations are seen as pass-through entities, meaning taxes are not paid at the corporate level.
Forming a Corporation in California
Like an LLC, forming a corporation in California begins by filing articles of incorporation. Fees range from $30 to $100 depending on the type of organization. Other documentation and fees may be required depending on your unique business needs.
Launching Your Business
Once you’ve identified the right business structure, you’re ready to launch your business. Contact the California Secretary of State office to determine the forms and fees for your structure. Once you’ve chosen a business name, filed your forms and paid required fees, you’ll be ready to operate your California business.