What Business Entity Should I Create?

In short, it depends.  The business entity that is best suited for your neighbor and her organization is not necessarily the best business entity for you and your company.  There are many discussions that must take place before selecting the best entity structure.

In California, there exist 5 basic types of business entities.  They are:

  • Sole Proprietorship – This is probably the simplest of the business structures because no formal business entity is created.  When you function as a sole proprietor you are exposed financially to the company.
  • General Partnership – Comprised of two or more people who each have responsibility for the running of the enterprise and each have general responsibility for the company’s debts, this business entity is fairly popular.  This type of business arrangement does not provide many protections.
  • Limited Liability Partnerships – California reserves this type of entity only for use by accountants, attorneys and architects so if you are not an accountant, an attorney or an architect you should investigate the other options listed here.
  • Limited Partnership– This business entity is similar to a general partnership except there is typically one general partner and the remaining partners are limited partners, the limited partners have limited involvement in the day-to-day operations of the business and, more importantly, limited liability.
  • Limited Liability Company – Provides some protection from liabilities similar to a corporation but acts like a sole proprietorship or general partnership in distribution of earnings.
  • Corporation (various forms of corporate entities exist) – A corporation is an entity that offers protection from liabilities but also is the most document intensive of the business entity selection.  You may chose an S-Corporation or a C-Corporation and your selection will depend on several factors that include tax consequences and other cost considerations.

As you can see, there are several business entities from which to choose.  To determine the best business entity for you and your venture you should consult your accountant and your legal advisor for input and direction.  An attorney who knows your business will, undoubtedly, be able to provide the best advice.

What business entity might be the best for your circumstances?

If you are needing help with your business planning  contact us to schedule your comprehensive Business Building Benchmark today so we can identify the best course of action for you. 

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Written by Integrated General Counsel

Our focus includes handling a variety of corporate matters and also includes litigation in state and federal courts. Our current practice includes providing transactional services and representing a variety of small and medium-sized companies as their outsourced general counsel.