Form Your Business the Right Way, the First Time
The choices you make when forming your business have long-lasting impact.
Choosing the type of business to form should be done with thoughtful consideration and expert advice.
This choice should be made based on the ownership structure, goals of the business, and other factors. Read below for some information on the most common types of businesses to form in the state of California.
Business Entities Types
A sole proprietorship is made for a single individual only. In a sole proprietorship, the owner is able to enjoy all of the profits of the business, but he or she is also personally liable for any debts and liabilities of the business. This does mean that there are no legal protections for the owner if someone decides to sue the business.
In a sole proprietorship there is no legal distinction between the company and the individual owner, nor is there a distinction when it comes time to file taxes. Owners of a sole proprietorship are subject to self-employment taxes and will report all earnings on a 1099 Form.
A sole proprietorship might be the right choice for your business, depending on what types of products or services you intend to sell. The Law Offices of Geoff Wiggs can help you to make that decision!
Limited Liability Company (LLC)
A Limited Liability Company can be created for a single owner or multiple owner business. One of the biggest draws towards an LLC is the fact that owners personal assets are not typically tied to the business in the event of a lawsuit or other legal event.
Similar to a sole proprietorship, profits can be passed on to the owner(s). With an LLC, the business can be taxed in a number of different ways depending on the ownership structure and other factors.
An LLC does require members to make certain disclosures to the government, which become public, and officially define the relationship between owners and managers of the business. One important thing to note is that LLCs are not able to issue stock, so if that is the intention of your business somewhere down the road, an LLC might not be for you. The Law Offices of Geoff Wiggs can help you to make the decision!
An S Corporation is similar to an LLC in that the owners are personally protected in the case of lawsuit, however, they differ greatly when it comes to taxation.
In an S Corp, owners have chosen to consider the business a “pass-through entity” which means that the business is not subject to federal income tax. The owners of the business are also considered employees of the business, and they are subject to standard income taxes on their W-2 wages. They must be compensated fairly compared to others in similar roles within the industry.
Owners can accept shares of the profits, called distributions, which are taxed as income. In some S Corps, owners can save on self employment tax.
S Corporations are able to sell stock and attract investors, though there is substantial information that they need to disclose before this option becomes a possibility. The Law Offices of Geoff Wiggs can help you decide if this is the right option for your business!
Deciding what type of business to choose should be done with the utmost care and understanding. Contact us today for your free case evaluation!