Starting a new business in California involves important decisions, one of which is determining the legal structure or formation option for the business. Selecting the right option is important, as it impacts aspects such as liability protection, tax obligations and management structure.
Learn more about the various formation options available for new businesses in California.
Sole proprietorship
A sole proprietorship is the simplest and most common form of business ownership. It is a one-person business where the owner has complete control and is personally liable for all business obligations. While easy to establish and operate, a sole proprietorship offers no separation between personal and business liabilities.
Partnership
A partnership is a business structure involving two or more individuals who agree to share profits and losses. There are two main types of partnerships: general partnerships and limited partnerships. General partnerships offer shared liability among partners, while limited partnerships have a combination of general partners with unlimited liability and limited partners with limited liability.
Limited liability company
A limited liability company is a popular choice for many new businesses. It combines elements of a corporation and a partnership, providing limited liability protection to owners while maintaining flexibility in management and tax treatment. LLCs offer personal liability protection and can have a single member (owner) or multiple members.
Corporation
A corporation is a separate legal entity from its owners, known as shareholders. Corporations offer limited liability protection, meaning shareholders are typically not personally responsible for the company’s debts and obligations. California recognizes different types of corporations, including C corporations and S corporations, which have different tax structures and ownership requirements.
Nonprofit organization
You can form a nonprofit organization for charitable, educational or public benefit purposes. Nonprofits operate with a mission to serve the community rather than generate profits for owners or shareholders. Incorporating as a nonprofit organization in California requires compliance with specific rules and regulations set forth by state and federal laws.
Professional corporation
Certain professionals, such as doctors, lawyers, accountants and architects, may choose to form a professional corporation. A PC is a specialized form of corporation that allows licensed professionals to practice their respective professions while enjoying the benefits of limited liability protection.
Carefully evaluating the specific needs and goals of the business will help determine the most suitable formation option to set a solid foundation for success.