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Choosing a business formation in California

On Behalf of | May 26, 2023 | Real Estate and Business Transactions |

When a person decides to start a business, there are many things to consider. They may think about where to build their business, what types of items to sell and how many employees they will need to hire.

However, before deciding on the details, it’s important to choose a business structure that is the right fit.

Types of business formations

There are several types of business formations available. Some of the most common are sole proprietorships, partnerships, limited liability companies (LLC) and corporations.

A sole proprietorship is the simplest business formation. An individual owns and manages the business, and they are considered the same entity. The owner is responsible for all business debts as well.

A partnership is a business owned by two or more people. They share the profits and losses of the business. In a general partnership, all partners have unlimited liability. In a limited partnership, one or more general partners have unlimited liability, and one or more partners have limited liability.

An LLC combines the tax benefits of a partnership with liability protection. The members of the LLC are not personally liable for the debts of the business.

A corporation is separate from its owners. The owners of a corporation are called shareholders, they can enter into contracts and they are also not personally liable for the debts of the business.

Registering the business

Once a person has decided which entity they would like to use, they must register the business. This involves choosing a unique business name, filing articles of incorporation or organization, obtaining necessary permits and licenses, and registering for taxes.

They may also want to open a separate bank account to keep personal and business finances separate.

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