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Starting a business is a new and exciting adventure, but it is also one that requires asking a lot of important questions and making a lot of important, often irrevocable decisions. One of those decisions is which form your business should take. When forming a small business in California, you have six business entity options to choose from:

  • Corporation,
  • Limited liability company (LLC),
  • General partnership,
  • Limited partnership,
  • Limited liability partnership (LLP), and
  • Sole proprietorship.

Each option has its positives and negatives, and in order to make the right choice for your business, you need to consider everything from your ultimate business goals to California’s business laws.

Typically, when forming a small business in California, the business owner narrows down their entity choices to corporation, LLC, or some type of partnership. They often want to know what the difference between the three is, and which is a better choice for them. A San Francisco business attorney can guide you in your decision and help you find the best option for your future business goals.

A Partnership May Be the Best Option for Your Small Business

Again, while each entity option has its benefits, partnerships are great for small businesses that wish to operate with a bit more freedom than the typical business structure offers. For instance, partnerships offer more freedom than a corporation or LLC, simplified taxes, and the ability to move assets into and out of the company as needed.

Freedom

Partnerships offer a much more fluid governing structure than any other type of business entity. If you decide to form a partnership, you have the freedom to decide how involved each partner is, which aspects of the business each partner will manage, whether or not you and your partner want to be involved at all, or if you want to hire a professional manager.

Taxes

Taxes are almost always the heaviest burden on small businesses and their owners. Not only do small business owners get hit harder than the average working-class individuals, but they also get hit twice – once as a business owner and once as a business entity. However, as a partnership, your business does not have to actually pay the taxes; any profits and losses accrued through your business can be incorporated into each owner’s personal income, thereby simplifying the tax process. Because a corporation is an entity, the corporation is taxed, and then the profits are passed down to the owners, who are taxed for that income as well. Furthermore, the losses of corporations and LLCs are not passed down to the owners themselves, as they are in partnerships, so the owners cannot receive a tax break should the business experience any major losses.

Transfer of Assets

In a partnership or LLC, all money and assets must be accounted for and legally documented, making the flow of assets into and out of the company a process that is not done routinely or lightly. However, in a partnership, because all taxes go through the owners, the owners are free to move assets into and out of the company as needed.

Hire a Business Attorney

When forming a new business of any type in California, it is always best to consult with a business attorney before finalizing any major decisions, such as which entity to go with. Our San Francisco business attorneys can guide you through the business entity formation process and help you settle on a decision that will benefit you now and in the future. If you are in the process of forming a new business in the San Francisco Bay Area, contact the business attorneys at Garcia & Gurney, ALC at 925-468-0400 or online to schedule your consultation today.

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