Incorporation Attorney has helped many startup businesses in California. Our services include assistance in forming the chosen business structure for the company. The top choices of entities include LLC, s corp, and c corp. What form of business ownership is the best for your company? Find out by learning the differences between each.  

Starting a Company in California – Deciding on The Most Appropriate Business Structure 

There are many, many budding entrepreneurs who plan to put up a business in California. A lot of them are only concerned about choosing a name for the company, picking a location for their enterprise, and planning out their products and/or services. These variables are all essential in starting a business.  

However, these new business people must never forget to consider what business structure to form. Selecting a business entity can make or break any company. It largely determines the success of a business.  

When these startup entrepreneurs come to us, they often ask about the three most popular forms of business ownership, namely: limited liability company, s corporation, and c corporation. Our corporate lawyers are always willing to spend ample time to walk a client through these business entity options and discuss the differences between each.  

Why Do Companies Need to Select the Right Structure for their Business? 

In starting a business in California, the right structure can help determine the future success of a company. There are two basic reasons that serve as a guide for clients to pick to form a specific business entity. These two reasons are: 

1. Entrepreneurs Choose a Structure that will Protect their Assets 

Business people need to select the right entity to protect their assets from liabilities that may potentially arise in the future. For example, an owner of a business sends his secretary across town to purchase a number of items for the company. On her way back, she accidentally runs over a lady crossing the street. The business owner, without asset protection, could be at risk of losing his personal properties because of his secretary’s mistake. However, with the right business structure, the lady can sue the company and collect money from their insurance without affecting the business owner’s personal assets and bank accounts. 

2. Business Owners Select a Structure that has the Most Agreeable Tax Implications 

The best type of business entity is one that can allow a company to write off as much money as they legally can before having the balance of their income subject to tax from the Internal Revenue Service.  

Businesses that choose to be a sole proprietorship have a very high probability of getting audited. Their ability to be creative with their tax returns is severely restricted. This is because sole proprietorships have tax forms that are so simple and related to the owner’s personal 1040. A qualified CPA can guide a business owner through the more technical aspects of this strategy. 

Since LLCs, s corps, and c corps are taxed very differently, it is imperative to know the specifics of a business in order to choose the most appropriate structure for the company. The selection of entity is also determined by whether the owner is a US citizen or a green cardholder.  

What are the Differences Between LLC, S Corp, and C Corp in California? 

The following are simplified comparisons of the most popular forms of business ownership in California. These basic descriptions of each entity show why entrepreneurs choose one over the other. To better understand each of these structures, it is best to consult with an expert corporate lawyer. 

1. Limited Liability Company 

Many businesses choose to form an LLC because of the flexibility of the management structure in this kind of entity. The pros of a limited liability company are: 

• Personal assets are shielded from business liability 
• This structure requires separation of business and personal finances 

• This entity is allowable in all 50 states and the District of Columbia 
•  Its management structure is flexible 
• There are more tax reporting options available 

LLCs, however, is a structure that is not recognized in many countries outside the United States. The following are the cons of forming an LLC: 

• It is not the preferred choice of outside investors 

• It is not preferred for IPO 
• This entity is not recognized outside of the US 

2. Corporation 

In California, most businesses that want to provide professional services are allowed to form a corporation. The following are the pros of incorporating a company: 

• A corporate structure protects personal assets from business liability 

• A corporation requires the separation of business from personal finances 
• Corporations are allowed in all 50 states and the District of Columbia 
• It is a structure highly preferred by outside investors 
• It is also preferred for IPO 
• It is a business entity recognized outside of the US 

Although a corporate structure has its many advantages, this structure also has its own set of disadvantages. The cons of forming a corporation are: 

• This form of business ownership does not have flexible tax reporting options 
• The management structure is also not flexible. 

Corporations, as well as LLCs that want corporate taxation, may choose to file taxes as an s corp or a c corp.  

a. S Corporation 

An s corporation is considered a pass-through type of entity. This means that the company itself is not taxed. Instead, income is reported on the business owners’ personal tax returns.  

b. C Corporation 

Enterprises that are taxed as c corps are not pass-through entities. Income is taxed at the corporate level. If dividends are distributed, income is taxed at the individual levels as well.  

Choose the Best Form of Business Ownership in California! Consult with a Corporate Lawyer! 

To know the best form of business ownership for your company, you should seek the help of a competent corporate lawyer. Incorporation Attorney is an expert in helping startup businesses in California. Our business lawyers can discuss the differences between LLC, s corp, and c corp thoroughly so that you can be guided through the selection of the most appropriate structure for your enterprise. Call us today at +1 (714) 634-4838!