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Starting a Business

(NOTE: The following information is adapted from the California Business Portal website of the California Secretary of State and is provided for general information only. Please consult the corresponding official in your state.)

Starting a businessOnce 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 needs and the needs of your particular type of business should also be considered.

The 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. It is strongly recommended you consult with a legal representative and accountant before making a determination as to the type of business entity to form.

Sole Proprietorship

A sole proprietorship is set up to allow an individual to own and operate a business by him/herself. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business. If a sole proprietorship is formed with a name other than the individual's name (example: John Smiths Fishing Shop), a Fictitious Business Name Statement must be filed with the county where the principal place of business is located.

Starting a businessCorporation

A domestic corporation generally is a legal entity which exists separately from its owners. While normally limiting the owners from personal liability, taxes are levied on the corporation as well as on the shareholders. The sale of stocks or bonds can generate additional capital and the longevity of the corporation can continue past the death of the owners. Legal counsel should be consulted regarding the variety of options available for formulation.

Limited Liability Company

A domestic limited liability company generally offers liability protection similar to that of a corporation but is taxed differently. Domestic limited liability companies may be managed by one or more managers or one or more members. In addition to filing the applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the limited liability company and the conduct of its business is required. The limited liability company does not file the operating agreement with the Secretary of State but maintains it at the office where the limited liability company's records are kept. Professional limited liability companies may be restricted in your state.

Limited Partnership

A domestic limited partnership may provide limited liability for some partners. There must be at least one general partner who acts as the controlling partner while the liability of limited partners is normally limited to the amount of control or participation they have engaged in. General partners of a limited partnership have unlimited personal liability for the partnership's debts and obligation.

Starting a businessGeneral Partnership

A general partnership 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. Filing at the state level is optional.

Limited Liability Partnership

A limited liability partnership is a partnership that engages in the practice of public accountancy, the practice of law or the practice of architecture, or services related to accountancy or law. A limited liability partnership is required to maintain certain levels of insurance as required by law.

Last revised August 2007

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