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THE DIFFERENT WAYS OF DOING BUSINESS IN CALIFORNIA

Business entities can be structured in two ways: in terms of their structures as legal entities, and in terms of the internal structure and management processes. 

GENERAL PARTNERSH​IP

This business structure is run and owned by two or more entrepreneurs. If two or more persons are engaged in doing business with each other, you are automatically classified as a partnership for tax purposes.


PROS

1. Its very ease in terms of filing and tax treatment.

2. You can start a partnership without any filings with the Secretary of State.

3. There are no special formalities

4. Partners are taxed individually on their share of partnership profits

5. Can choose to be taxed as a Corporation


CONS

1. Each partner has personal libility, if assets and insurance do not cover the a creditors claim or judgement they can come after your personal assets

2. No separation of entity from owners

LIMITED LIABILITY PARTNERSHIP

This business structure is very much the same as a general partnership but has some limited liability protection for some of the partners. This structure is used when there is a passive investor which are called limited partners. These limited partners are able to invest in the business without the risk of personal liability for the debts of the business

PROS

1. Limited partners are protected up to their investment in the business.

2. Great for individuals looking to make investments without the need of managing the business

CONS

1. Limited partners don’t participate in the day to day operations of the business

2. The limited partners are not allowed to manage or control the partnership

3. Pay the minimum $ 800 Franchise Tax Board fee every year 

LIMITED LIABILITY COMPANY

This is a business structured allowed by the state. Which gives business owners to pay business taxes on their personal tax return while at the same time enjoying the limited liability protection you get from a corporation.

PROS

1. California does not restrict ownership on this entity so anybody from individuals, partnerships, corporations, other LLC and foreign entities can have ownership.

2. Personal assets are protected against creditors

3. No maximum number of owners

4. LLCs can be taxed different ways depending on the election made by LLC. Can be taxed as sole proprietorship, partnership, corporation or S-Corporation status

CONS

1. Have to file with the Secretary of State

2. Some business cannot be LLCs. 

One example are banks and insurance companies

3. LLC have to file Annual reports every two years

4. Pay the minimum $ 800 Franchise Tax Board fee every year

5. California taxes you on the gross receipts of your business not on your net profitnes at a time. Break up your content into different blocks to keep your page interesting.

C CORPORATION

The corporate structure is less simple to found and maintain but has the advantages of limited liability and perpetual life.

PROS

1. Protection of personal assets of stockholders, directors, and officers. They are limited in liability to the amount they have invested in the corporation

2. Separate entity from its owners, which makes ownership very easily transferable via shares

3. The limited liability provided by the corporation makes financing more attractive from a risk perspective

CONS

1. Compared to other entities the corporation is the most complicated out of the bunch.

2. Corporations have to file Statements of Information every year

3. Have organizational meetings to elect a board of directors

4. Double taxation where the corporation is taxed on its profits and shareholders are taxed on the dividends received from the earnings of the corporation

5. Pay the minimum $ 800 Franchise Tax Board fee every year 

S CORPORATION

S-Corporations is a taxation structure where the corporation, LLC or general partnerhip can elect to pass corporate income, losses, deductions and credits through there shareholders for federal and state tax purposes.

PROS

1. Provides limited liability protection with federal income taxation similar to that of a partnership. The best of both worlds

2. Corporate penalties such as accumulated earnings tax or alternative minimum tax do not apply if you elect to be taxed as an S-Corp.

CONS

1. Pay the minimum $ 800 Franchise Tax Board fee every year 

2. File Statement of Information with the State

3. Can only issue one type of stock

4. Owners have to give themselves a reasonable salary when company is making a profit