Types Of Business Entities That Can Be Formed In California

By Author: William Hauselberg
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Doing Business in California

California is a great place to do business. The state has a strong and diverse economy. Hundreds of new businesses are formed in California each day, including many California limited liability partnerships. If you are a hopeful entrepreneur, here are a few things you should know about doing business in California.

Choosing the Right Business Entity

Anyone starting a business should take care to choose the right type of entity. Different types of entities are taxed differently. They also have different creation requirements. In California there are six entities to choose from. These entities are: corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, and sole proprietorships.

Some entrepreneurs are tempted to form sole proprietorships because they are the simplest entity. They do not generally require any formation documents. This simplicity comes with drawbacks. The most significant drawback is that the business owner is personally liable for the business. Personal liability can be a problem in the case of ...
... serious losses or legal action. A sole proprietor who gets sued by an unhappy customer, for example, could end up losing his or her personal assets. Many of the other business entity types offer attractive protections from personal liability that enable business owners to take more entrepreneurial risks.

While it is possible to convert an entity into another type after it has been created, the conversion process can be complicated. Therefore, it is best to choose the right entity type from the start. Business owners save money when they only have to file registration documents such as California articles of incorporation once. Consulting with an attorney can be helpful if you are unsure about which entity is best for you. Seeking an accountant's advice can also help you decide on the right entity.

Filing the Required Paperwork

The Secretary of State of California is responsible for keeping track of most business entities. To establish a corporation, California articles of incorporation must be submitted along with a filing fee to the California Secretary of State's Office. Entrepreneurs who wish to register California limited liability partnerships must file an application to register a limited liability partnership for each partnership they establish.

Depending on the entity type, business owners might also be required to submit yearly reports detailing their current officers and other information. To avoid penalties, be sure to keep up to date with such document filings.

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