Choosing a Structure for Your Business Start-Up

One of the first decisions you must make to start your own business is which type of structure suits your needs best. It’s advisable to schedule an appointment at a corporate law firm serving San Jose. Even if you already have a basic understanding of the types of business entities, a corporate attorney can offer expert legal guidance regarding which entity is best for you. Additionally, your corporate lawyer can prepare the paperwork, provide advice on compliance issues, and help you navigate the operation of your company.

Sole Proprietorship

The simplest type of business entity is a sole proprietorship. If you own an unincorporated business, and have no co-owners or partners, then you are automatically a sole proprietor. Many small business owners begin as sole proprietors, and then later file the paperwork necessary to form another business entity. Some common areas of concern for sole proprietors include doing business under a fictitious name—which is a name other than your own—and handling tax planning issues. Your corporate attorney can help you with these matters.

Partnership

If you decide to form a business with one or more individuals, then the right business structure for you may be a formal partnership. Bear in mind that partners in this business structure are not legally employees. You will not issue yourselves W-2s. Your partnership will have to file an annual information return, which is not the same as a tax return. Rather, each partner assumes profits and losses, which are reported on their individual tax returns.

Corporation

A corporation, or C corporation, is an independent business entity. It is owned by its shareholders. However, the corporation—not the shareholders—is held legally liable for the accrual of any debts or adverse actions. This type of business structure is generally best suited to large companies that hire many employees, particularly since it involves very complex legal and tax issues.

Limited Liability Company (LLC)

One or more individuals may own an LLC. Many entrepreneurs prefer to form an LLC because it offers the benefits of a partnership, such as flexibility with day-to-day operations, along with significant liability advantages. As with a partnership, profits and losses are passed through to the owners.

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