This is the second post in our series on starting a new business in Santa Ana or elsewhere in Orange County, California. Our last post provided an overview of topics this series will address and stressed the need to get your new enterprise off on the right foot. Failing to start up properly can result in administrative problems which arise later down the road. In this post we will discuss another important topic – picking the right entity structure for your new company. The form of entity which you choose can have a dramatic impact on how you conduct your affairs. If you have questions about which choice is in your best interests then contact a business law attorney today.
Orange County start-ups must understand the different types of business entities when forming a company
There are many types of corporate structures to choose from. The most basic form for a company is a “sole proprietorship.” This is when the small business owner does not start a separate entity and reports business income and expenses on his or her personal tax return. Common examples of a sole proprietorship may include plumbers and other tradesmen. A “partnership” is a legal entity formed between two or more persons. These types of companies are often professional service providers such as attorneys, accountants, etc. A “limited liability company (LLC)” is another option that is chosen by many companies, large and small. Finally, a “corporation” is an option wherein the owners are “shareholders.” There are pros and cons to choosing any of these structures.
Those operating a sole proprietorship or a partnership will face personal liability in the event that a lawsuit is filed against the business as these structures offer no protections against litigation. Also, the owners of such businesses will pay taxes on company profits through their personal returns. An LLC, by contrast, is considered an independent legal entity which is separate from its owners. It will shield the owners from being personally liable for business activities. Like a partnership, the owners of an LLC will pay taxes on their share of company profits through their personal tax return. Finally, a corporation is also considered to be a separate entity from its shareholders. The difference between a corporation and an LLC is that corporate owners do not pay taxes on the company’s income. The company will pay its own taxes and the shareholders will be taxed on any dividends they receive.
These are just some of the differences in the various forms of business entities. It is important that Orange County start-ups understand these differences so that they can operate in as streamlined a manner as possible.
A Santa Ana attorney can help Orange County businesses choose the right structure
There is no “right answer” when trying to determine which corporate business structure is best. This is because the answer will depend on your individual goals and circumstances. If you are a tech company and believe that you may some day wish to go public then a corporation may be the best vehicle to meet this end. If you are a professional services company and do not see yourself expanding to a large number of employees then you may wish to form an LLC or a partnership. Factors to consider when choosing a business entity include whether you will need to raise capital from outside sources, the extent to which you need to bring in new owners, and more. Hiring a lawyer can help you to determine which entity best fits your needs.
Our Santa Ana business law attorneys assist with forming an Orange County, California business entity. Contact our attorneys today. We service Aliso Viejo, Anaheim, Buena Park, Costa Mesa, Dana Point, Fountain Valley, Fullerton, Garden Grove, Huntington Beach, Irvine, La Habra, Ladera Ranch, Laguna Beach, Laguna Hills, Laguna Niguel, Lake Forest, Mission Viejo, Newport Beach, Orange, Placentia, Rancho Santa Margarita, San Clemente, San Juan Capistrano, Santa Ana, Tustin, Westminster, and Yorba Linda.