California Business Entities

Starting a business can be an extremely rewarding venture for many people. In order to begin though, it is required that a future business owner choose between several different types of California business entities when setting up their business.

Understanding Various Types of California Business Entities:

When choosing to start a business in California, you can choose to have one of the following California business entities:

• Corporation
• Sole Proprietorship
• Limited Liability Company

or;

Partnerships:

• Limited Partnership
• General Partnership
• Limited Liability Partnership

Each of these California business entities has its advantages and disadvantages, depending on your particular situation. Forming a corporation or a Limited Liability Company (LLC), as well as the various advantages and disadvantages of these California business entities, is discussed in separate articles.

Sole Proprietorship

Under this type of business, the owner and the company are considered one for purposes of profits, taxes and liabilities or debts. That is, the owner or sole proprietor reports his business profits on his personal tax return, and there is no separate taxation for the business.

There is no paperwork required to be filed with the California Secretary of State to form a sole proprietorship. However, you do need to do the following:

• Choose a business name, ensuring that the name is not too similar to another business’ name and not confusing to the public;
• If your business name is different from the sole proprietor’s legal name, the sole proprietor has to file a Fictitious Business Name Statement with the county recorder;
• Apply for an Employer Identification Number; and
• If necessary, get licenses, permits, and zoning clearances.

Limited Partnership

For this kind of business entity, you need at least one general partner, and one limited partner. Unlike the limited partner, the general partner takes care of the day-to-day running of the business and can be liable for the business debts and liabilities. If the limited partner gets involved with the day-to-day running of the business, then he becomes personally liable for debts as well.

To form a limited partnership in California, you mainly need to:

• Come up with a partnership agreement, either written or oral, between the general partners and the limited partners; and
• Complete and file a Certificate of Limited Partnership and file this form with the Secretary of State.

General Partnership

This is a business organized when two or more people come together to run a business for profit. The partners share the responsibilities and debts as outlined in a written or oral partnership agreement. Taxes on profits are reported on the partners’ individual tax returns.

Legally, partners become jointly and severally liable for all legal and financial responsibilities of the partnership and for all illegal acts of any partner acting in the ordinary course of partnership business.

In order to form a general partnership, you have to file a Statement of Partnership Authority with the Secretary of State and pay a fee. This statement outlines any or all the partners’ authority to act on behalf of the business or the other partners. After the office reviews the statement, they will send you a Certificate of Registration.

Limited Liability Partnership

Formation of this kind of business is limited to certain professionals licensed in their field, such as accountants or attorneys. A limited liability partnership extends limited liability protection to all the partners, and all the partners can be involved in the daily running of the business. Each partner is legally responsible for his own actions or omissions in the course of business, and as outlined in any partnership agreement between the partners.

To form this kind of business, you have to submit an Application to Register a Limited Liability Partnership with the Secretary of State, and pay a filing fee. The Secretary of State sends a Certificate of Registration after reviewing and approving the application.

If, after researching and considering the various California business entities available, you would like to have your forms and documents prepared and processed, you should contact A People’s Choice for experienced assistance from affordable non-attorney professionals.

Get help with your legal documents today!

A People’s Choice has been providing self-help legal document services for over 30 years and has established an excellent reputation in the community. When you are ready to go ahead with your paperwork, information can be provided to us through our convenient online system, over the phone or in person. Although we cannot give legal advice, A People’s Choice can help you in preparing all the required legal documents to help you set up your California business entity without having to hire a lawyer. If you need more information, do not hesitate to call our office.