Choosing the Right Business Model
Choosing the right business model can be very daunting as one’s enterprise may come into many forms. Choosing the right entity can reduce your taxes, protect your personal assets and give you peace of mind. Call the Route 66 Law Group and speak to a professional who we will discuss your business needs and the benefits and downsides of each option. Here is a small list of business models to choose from:
CORPORATIONS (C-Corps and S Corps)
The corporation is a separate entity and therefore carries with it limited liability protection for its owners or stockholders. It has perpetual life and is a tax paying entity. Double taxation is a potential negative feature as earnings are taxed at the entity level and then taxed again when distributed to the stockholders as dividends.
A corporation is formed by filing the Articles of Incorporation with the Secretary of State. Shares of stock are issued to the shareholders, bylaws are adopted, and a board of directors is elected. The boards of directors manage the corporation and appoint officers (president, secretary, treasurer) to maintain the ongoing daily affairs. The laws require regular director and shareholder meetings be hold, minutes of those meetings be kept, and any decisions made at those meetings be formalized in the form of written resolutions Failure to maintain these records will jeopardize the corporate status and leave the stockholders vulnerable to personal attack and responsibility for tax liability and corporate debt.
The partnership form of doing business is noted for its simplicity and ease of formation. A general partnership can be formed through a simple contract or an official registration through Sacramento. The down side is that the partners are joint and severally liable for the debts of the partnership. This means that each partner is fully liable for the actions of the other partner.
A limited partnership offers more protection in that the limited partners are generally not liable for partnership debt and only their investment is at risk. A general partner must be appointed who is responsible for the limited partnership’s operations. A limited partnership files a document with the secretary of state and is governed by a limited partnership agreement.
A limited partnership is limited to 35 owners. Both general and limited partnerships enjoy the benefits of partnership taxation.
LIMITED LIABILITY COMPANY (LLC)
The LLC is a hybrid form of doing business that combines characteristics of the corporate structure and the partnership structure. It is a separate entity like a corporation and therefore carries liability protection for all of its members, but (if structured properly) is taxed like a partnership which has the benefits of flow through taxation.
Operating as a sole proprietor is certainly the easiest and cheapest form of doing business. After getting proper state and local business licenses, a sole proprietor can basically open the doors and be in business. The shortcomings of this business form, however,can be devastating. There is absolutely no protection between you and your business and there are no tax benefits.
If you are looking for excellent legal services for Business Formation in the Inland Empire, including Rancho Cucamonga, Fontana, Ontario, Upland, Pomona, and even Los Angeles County or Orange County, then contact us.