Which Business Entity Is Right for You?

If you are considering starting a business, you have a lot to think about. Where should you be located? Who should you hire? What products and services should you offer? Where will you get financing?

One of the top questions that should be on your mind is what type of legal entity you will use for your company. Some people assume that they do not need a legal entity for their business just because it is easier not to create one. However, that type of thinking can get you into real legal trouble and may even threaten not only your business assets but also your personal assets and other sources of income. Below is a brief outline of the various entity options available to you as a new business in California.

Sole Proprietorship

There are roughly 23 million sole proprietorships in America today. If you are considering this business structure, you are certainly not alone. Perhaps the reason that there are so many of these business types is that they take no extra effort or funds to establish. In fact, most sole proprietorships operate under their own name and do not have a business name.

While there are certainly benefits to having a sole proprietorship, there are drawbacks as well. There is no separation between you and your business. That means that the debts and liabilities that your business has are also yours alone. If your company goes under, you go under. For many, this idea is frightening enough to consider another business type.

General Partnership

If you want to go into business with someone else, you may want to consider a general partnership. Much like a sole proprietorship, a general partnership does not require any formal documentation to form. In many cases, you and your partner just have to act as a partnership for it to exist. However, there are no limits to liability in this type of business entity either. The partnership debts are also the debts of each individual partner.

Corporation

A corporation is managed by a board and owned by shareholders. Most very large companies are corporations, but not all. Corporations are separate legal entities, which means that the owners can limit their liability a great deal. In fact, many corporations offer stock options so that members of the public can become owners without any additional liability other than their initial investment.

Corporations have a lot more formal legal requirements to maintain the structure. While they have many benefits, the cost of creating and doing upkeep for this type of business may not work well for smaller companies.

Limited Liability Entities

Many people assume that there are few options between a sole proprietorship and a corporation. However, there are actually several types of entities that might work better for your needs. California offers several types of entities that have limited liability, but they also have less paperwork than having a full corporation. These include:

  • Limited Liability Partnership
  • Limited Liability Company
  • Limited Partnership

The right entity for your company will depend on a wide variety of factors. Schedule an appointment to work through your potential options. We can help you decide which entity type will work best to fit your needs. Call today: 818-222-4060.

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Adler Law, A P.C.

Robert Adler is a sole practitioner who has spent over three decades protecting the rights of construction, real estate, business litigation, and personal injury clients throughout Calabasas, California—and beyond.

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