Types of Business Structures
Each type of business structure has advantages and disadvantages. Carefully compare the benefits of the different types of structures for your business before making a decision. You can find more detailed information from the US Small Business Administration (SBA). You should also consider consulting an attorney for legal and tax advice.
Once you choose your business structure, you may register your business with the City. If you chose a partnership, corporation, or limited liability company (LLC) as your business structure you should register or incorporate with the CA Secretary of State first.
Choosing the Right One for You
Sole Proprietorship
A sole proprietorship is the most basic type of business to establish. You alone own the company and are responsible for its assets and liabilities
General Partnership
In a general partnership, two or more people share ownership of a single business. The partners manage the business and are responsible for all debts and obligations of the business. The details of this agreement should be written out formally to define the roles of each partner, including what would happen if the business fails.
Limited Partnership (LP) and Limited Liability Partnership (LLP)
Limited Partnerships have both limited and general partners. The general partners own and operate the business, while the limited partners invest in the business but have limited liability and thus limited input in its management. Limited liability partnerships are similar to an LP, but in an LLP even the general partners have limited liability – eg. they are not responsible for the malpractice of the other partners. These business types are not usually used for retail or service businesses.
Limited Liability Company (LLC)
An LLC is a hybrid between a corporation and a partnership. Similar to a C-Corporation, business owners in an LLC are not responsible for the debt of the company – in other words, they have limited liability. However, unlike a corporation, the business does not file separate taxes. Instead, each partner (called members) includes their profits on their personal tax return.
C-Corporation
A C-Corporation (C-Corp) is more complex than other business types and is generally suggested for larger, established companies with multiple employees. It is a separate entity from those who own it, meaning it can be taxed (or sued) independently from its owners. In a C-Corp, the owners are called shareholders. They elect a board of directors to oversee major policies and decisions, and appoint officers who carry out the daily operations of the business.
S-Corporation
An S-Corporation (S-Corp) is similar to a C-Corporation except that the business is not taxed separately from the owners. S-Corps are also very similar to Limited Liability Companies (LLC’s) but with more limitations. The owners, called shareholders, avoid the double taxation of a C-Corp but the business is limited to 100 shareholders and has only one class of stock.
B-Corporation
A B-Corporation (Benefit Corporation or B-Corp) is a new business form in the United States that both generates money for its shareholders and benefits society. Directors are required to consider the effect of decisions on shareholders as well as workers, the community, and the environment. Shareholders in a benefit corporation determine if the company has achieved a material positive impact, which the organization defines beforehand.
B-Corps can also become Certified B Corporations if they meet the requirements of the nonprofit organization B Lab.
Trust
A trust is a relationship in which one person holds title to property, subject to an obligation to keep or use the property for the benefit of another. A trust is formed under state law. You may wish to consult the law of the state in which the organization is organized.