When setting up a start-up business, you should decide what you should be clear about your business goals – whether it should be a statutory entity, or one with collective ownership or simply sole proprietorship as the owner yourself. The form of business you choose decides the way you function and the way you should expend. In this article, we present six structures to choose from. They are:
1. Sole proprietorship
- In this type of proprietorship form of entity, you as an individual shall be the owner and be operating the business yourself. The advantage of sole proprietorship is you will have absolute control, bear tax and liabilities and pocket profits.
- Note that if your business has name other than yours, the business name statement has to be submitted to the county, where the business is located. To know your county where you need to submit refer to California counties provided on the California State Association of Countries.
- No documents are required to be submitted to the Secretary of State.
2. Partnership – general
- In general partnership, there shall be two or more people in a business for getting profit. Such businesses are not distinct taxed business entities. The partners mention their share both profit earned or losses experienced on the individual partners.
- Whether it is a financial or legal liability, and for all acts that are not legally correct, the partners will be jointly and severally liable.
- To get registration, you need to fill in A Statement of Partnership Authority (GP-1) and submit the same to the Secretary of the State corresponding i.e. California. This document shows the authority and limitations on executing transactions.
3. Partnership – limited
- Limited partnerships happen when two or more individuals of which one is acting as general partners, who has the general management and personal liability. There is also at least one of the partners with passive investment. These partners do not take part in management; and they do not carry any risk of liability barring their capital amount invested in the business.
- All limited partnership businesses must complete file (Secretary of State Form LP-1), a Certificate of Limited Partnership.
4. Limited liability partnership (LLP)
- In LLP, the partners are protected on a limited scale. Each partner must be a person having license under California laws, to participate in public accountancy, law or architecture.
- All partners should participate in management, unless it is agreed mutually.
- Each partner is at liability as put by the law. Each partner is also responsible debts and liabilities of the business.
- For registration, the Registered Limited Liability Partnership Registration (Secretary of State Form LLP-1) has to be filled and submitted to the Secretary of State along with the filing fee.
- For malpractice, liability practice requirement, the Limited Liability Partnership Alternative Security Provision transmittal form (Secretary of State Form LLP-3) has to be filled and submitted to the Secretary of State.
5. Limited Liability Company (LLC)
- A limited liability company has the combined features of both a partnership company and corporation.
- A limited liability company is a distinct legal entity and the legal structure offers protection to the owners against liability. The owners are called the members and these members have to come to an agreement – oral or written.
- If the LLC is a partnership structure, the Franchise Tax Board will assign it as an LLC, if the business does want to be recognized as a corporation. In such a structure, the profit/loss flows through to the owners/members and the company has to pay the minimum tax as fixed by law; and an annual license fee based according the income.
- If the firm wants to be recognized as a corporation, it’s treated as other corporations.
- For registering domestic LLCs, the Articles of Incorporation (Secretary of State Form LLC-1) has to be filled and submitted to the Secretary of State (along with filing fee).
- The form mentions the principal executive office, the principal office in California and the agent for service of process.
- For registering foreign LLCs, Limited Liability Company Application for Registration form (Secretary of State Form LLC-5) has to be filled and submitted to the Secretary of State. The fee also need to be enclosed along with the application.
6. Corporation
- A corporation has a distinct legal existence owned by the shareholders. The shareholders are protected from personal liability. Corporations are taxed annually on their earned income. The shareholders pay income tax individually on the earning in the form of dividends from the corporation.
- Corporations are managed by a board of directors. The board is the policy making group in the firm. Shareholders do not take part in everyday management activity.
- For registering any domestic corporations, the Articles of Incorporation has to be filled and required to be submitted to the Secretary of the State. The filing fee should be submitted along with the application.
- For registering non-profit companies, Articles of Incorporation has to be filed and to be submitted to the Secretary of State. Choose one according to the type of corporation from: one for Public Benefit, Mutual Benefit or Religious Corporations and one for Common Interest Development Corporations.
- For registering foreign corporations, the Statement and Designation by Foreign Corporation (Secretary of State Form S&DC-General) has to be filled and be submitted to the Secretary of State. The filing fee must be submitted along with the application.
You need decide the type of business, you are planning to choose. It depends, on the product/service, vision of business and your skills and competency in managing and exacting business.