The type of business entity that you choose to form in California could mean the difference between success and failure. We at Lawrence R. Jensen and Associates have put together a guide to help explain the pros and cons of a few of the most common types.
There is no one entity that is inherently superior; the one you should choose depends on your individual circumstances.
If you intend to raise capital for your business, a corporation is a business entity you should look at carefully. According to FindLaw, investors may be eager to put money into a corporation and receive stock in the company in return.
Other benefits of starting a corporation are the clearly defined management roles and the limited legal liability for owners. However, corporations are the most difficult and expense entities to establish, and you may be subject to double taxation.
A sole proprietorship can involve significant risk, particularly if you have employees. If you incur business debts, you may be responsible for paying them out of your own pocket. This is because a sole proprietorship does not limit liability or protect your personal assets. On the other hand, however, a sole proprietorship is one of the easiest and most affordable to set up and operate.
Limited liability company
An LLC combines relative ease of operation with the limited liability of a corporation. Many small and medium-sized companies benefit from forming LLCs. However, they can be moderately difficult to set up and may have an effect on the personal taxes of you and its other members.
You should also know that the business entity that you choose today may not serve your needs as well in the future. If this is the case, it may be possible to restructure your existing business in the future. For some entities, however, this may be easier to accomplish than others. More information about business formation is available on our website.