Once you decide to establish a business, a primary consideration is the type of business entity to form. Tax and liability issues, director and ownership concerns, as well as state and federal obligations pertaining to the type of entity should be considered when making your determination. Personal and personnel needs and the needs of your particular type of business should also be considered.

Following is a brief overview of various business structures. The information is intended to provide a basic understanding of the different business structures and is not intended to provide legal advice.

Corporation

A California corporation is a legal entity that exists separately from its owners. While normally protecting the owners from personal liability, taxes are levied on the corporation as well as on the shareholders. The sale of stock or bonds can generate additional capital and the longevity of the corporation can continue past the death of the shareholders.

Limited Liability Company (LLC)

A California LLC generally offers liability protection similar to that of a corporation but is taxed differently. Domestic LLCs may be managed by one or more managers or one or more members. In addition to filing the required documents with the Secretary of State, an Operating Agreement among the members is required. An LLC does not file the operating agreement with the Secretary of State but maintains it at the office where the LLC's records are kept.

Limited Partnership (LP)

A California LP may provide limited liability for some partners. There must be at least one general partner that acts as the controlling partner and one limited partner whose liability is normally limited to his or her investment. General partners of an LP have unlimited personal liability for the LP's debts and obligations.

General Partnership (GP)

A California GP must have two or more persons engaged in a business for profit. Except as otherwise provided by law, all partners are liable jointly and severally for all obligations of the partnership unless agreed by the claimant. Profits are taxed as personal income for the partners.

To register a GP at the state level, a Statement of Partnership Authority must be filed with the California Secretary of State's office. Note: Registering a GP at the state level is optional.

Limited Liability Partnership (LLP)

An LLP is a partnership that engages in the practice of public accountancy, the practice of law, the practice of architecture, the practice of engineering , the practice of land surveying, or provides services or facilities to a California registered LLP that practices public accountancy or law, or to a foreign LLP. An LLP is required to maintain certain levels of insurance as required by law.

To register an LLP in California, an Application to Register a Limited Liability Partnership must be filed with the California Secretary of State's office.

Sale Proprietorship

A sale proprietorship is established to allow an individual to own and operate a business. A sale proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business. If a sale proprietorship is formed with a name other than the individual's name, a Fictitious Business Name Statement must be filed with the county where the principal place of business is located.

No formation documents are filed with the California Secretary of State's office. Other state filings may be required depending on the type of business.