Starting a business can be a big challenge for people in California and across the country. There are a lot of tasks to do when preparing for a launch. These can include securing premises, printing up business cards, setting up advertising and registering with the state and city. But before all of that, the most important step is deciding on a structure for the business.
There are multiple business structures to choose from. Sole proprietorships are the simplest way to organize a new enterprise. In this structure, there’s no division between personal and business assets. Limited liability companies, or LLCs, offer more protection for entrepreneurs. An LLC creates a separate business entity and shields the owners’ assets in the event of business liabilities.
LLCs are regulated at the state level. The rules of operation can be slightly different in California when compared to other states. In general, most businesses can set up as LLCs. Exceptions to this include some businesses in the financial industry, like banks and insurance companies. LLCs can be set up by an individual, partners or even by another LLC. Foreign businesses can set up LLCs to do business in the United States.
LLCs are automatically classified by the IRS for tax purposes. The IRS may decide to treat an LLC as an individual, corporation or partnership. When businesses disagree with the way the IRS has classified them, they are able to appeal the decision.
Before forming an LLC, it may be a good idea to consult with an attorney experienced in business law. Business formation attorneys may be able to provide advice to entrepreneurs and predict how the IRS will regard a new entity.