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. Show
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.
Before you establish a business in the State of California, you should consult with a private attorney or tax advisor for advice about what type of business entity will meet your business needs, and what your legal obligations will be. CorporationA California 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. To form a corporation in California, Articles of Incorporation must be filed with the California Secretary of State’s office. Forms for the most common types of Articles of Incorporation are available on our Forms, Samples and Fees webpage. You may use the form or prepare your own statutorily compliant document. Back to Top 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 applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the LLC and the conduct of its business is required. The 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. To form an LLC in California, go to bizfileOnline.sos.ca.gov, log in, select Register a Business under the Business Entities Tile, Articles of Organization - CA LLC and follow the prompts to complete and submit. Back to Top 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 the amount of control or participation of the limited partner. General partners of an LP have unlimited personal liability for the LP’s debts and obligation. To form an LP in California, go to bizfileOnline.sos.ca.gov, log in, select Register a Business under the Business Entities Tile, Certificate of Limited Partnership - CA LP and follow the prompts to complete and submit. Back to Top 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 (Form GP–1) must be filed with the California Secretary of State’s office. Note: Registering a GP at the state level is optional. Back To Top 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 or 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 (Form LLP–1) must be filed with the California Secretary of State’s office. Back to Top Sole ProprietorshipA sole proprietorship is set up to allow an individual to own and operate a business. 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. 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. Back to Top Frequently Asked QuestionsPlease see our Frequently Asked Questions webpage for answers to the most frequently asked business entity questions. In which form of business organization is the owner in sole control of management and profits?Sole Proprietorship
These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts.
What form of business organization is owned by only one person who has complete control and authority of its own?Sole Proprietorship
This is a business run by one individual for their own benefit. It is the simplest form of business organization. Proprietorships have no existence apart from the owners.
What form type of business organization which is owned and managed by two or more individuals and the financial liability is shared by the owners?A partnership is an arrangement between two or more people to oversee business operations and share its profits and liabilities. In a general partnership company, all members share both profits and liabilities. Professionals like doctors and lawyers often form a limited liability partnership.
In which of the following forms of business organization are the owners not personally responsible for the debts of the business?Limited Liability Companies ( LLC )
Like a partnership, there is no double taxation and more tax flexibility than a partnership. A primary advantage of an LLC is that its "members" (owners) are not personally liable for the debts and liabilities of the LLC .
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In which form of business organization is the owner in sole control of management and profits multiple choice question?
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