S-Corporations are not technically a distinct entity type. Rather, the term “S-Corp” refers to a type of tax treatment available to corporations and LLCs that meet certain requirements. When a corporation makes an S-Corp election, it will avoid double taxation, which is often viewed as the primary disadvantage of creating a corporation (i.e. a C-Corp). Instead, the corporation will enjoy pass-through taxation. In the context of LLCs, the choice to be taxed as an S-Corp can allow the owners to lower their tax liability in certain situations. To elect to be taxed as an S-Corp, a company must meet strict requirements. These requirements, as well as a brief overview of how an S-Corp election impacts the 4 factors to consider when choosing a business entity, are described below. Read more
The limited liability company, or LLC, is a relatively recent addition to the menu of options available when choosing a legal entity. It is a hybrid between a partnership and a corporation, designed to combine the benefits of both. In short, an LLC enjoys the taxation and governance advantages of partnerships while also providing limited liability to the owners similar to a corporation. Below is a description of how an LLC fares in the 4 factors to consider when choosing a business entity. Read more
A limited partnership is a business entity that is characterized by two distinct types of owners – general partners and limited partners. General partners are the active managers of the business and (as in general partnerships) are personally liable for the obligations of the partnership, while limited partners (usually investors) act as passive owners who enjoy limited liability. In California, a limited partnership is created by filing a Certificate of Limited Partnership (Form LP-1) with the Secretary of State.
A general partnership is created when two or more people engage in business as co-owners for a profit. A general partnership is created automatically as a matter of law without filing any paperwork with the State, however, in California the partners may choose to file a Statement of Partnership Authority (Form GP-1) with the Secretary of State.
A sole proprietorship is the most basic business entity type. By definition, a sole proprietorship consists of only one owner who does business without any formal incorporation. If you add a second owner, then the business automatically becomes a general partnership. A sole proprietorship is legally indistinguishable from the individual. Read more
We are often asked “what is the best entity type?” There really is no one-size-fits-all answer because each entity may be more or less beneficial for any given enterprise. Rather, it is important for entrepreneurs to consider various factors when choosing a business entity. Read more
Although it is possible to conduct business as a sole proprietor or general partnership without any formal incorporation, it is generally a good idea to incorporate a business as a corporation or LLC. There are a few reasons why creation of a corporation or LLC is important. Read more