Choosing a Business Structure
1. Research and plan your business and personal goals.
Before you start your business, take some time and determine what you are looking to accomplish. Starting a business is no small task and you should be confident in your abilities prior to starting on this path. Write out your personal and business goals to help get an idea of what you are looking to do. This exercise will also help you decide how to structure and plan your business.
- The Small Business Administration offers an assessment to help you through this process. In addition, they offer a small business planner to take you step by step through the creation process. Use these resources as you see fit.
2. Get business assistance.
California offers a number of resources for entrepreneurs and business people. Use these resources to get help starting your business. Contact some of these resources and ask to set up meetings or go to events. These organizations can help you determine the path that is right for you. Some of these resources include:
- The California Business Incentives Gateway website, which catalogs and presents many of the business assistance programs available in California in a searchable database.
- Small Business Development Centers;
- California Association for for Local Economic Development;
- Service Core of Retired Executives; and
- Centers for International Trade Development.
3. Hire an attorney.
When you choose a business structure, you will inevitably be making numerous decisions that will affect your legal rights and the legal rights of those who will work for you. For these reasons, you should consider hiring a business lawyer to help walk you through the legal aspects of choosing a business structure and starting your business.
- Ask family and friends if they can give you a referral. Talk to people that have started businesses in the past or people that make a living in business.
- Use the California State Bar lawyer referral service. You can call (866) 442-2529 and talk with someone about your needs. They will then get you in touch with a number of qualified attorneys.
- Conduct initial consultations so you can talk to each potential attorney face to face. This will give you an opportunity to get to know them and gauge their ability to successfully help you get your business started. Be sure you ask about fees.
4. Choose a structure.
California offers a number of business structures you can utilize to accomplish certain things. Choose the business structure that best fits your needs. You can choose from the following types:
- A corporation, which will exist separately from you, the owner. While a corporation can shield you from personal liability in some cases, a corporation is taxed and so are the shareholders.
- A limited liability company (LLC), which offers liability protection like a corporation but is not taxed as an entity. Instead, the LLC’s income is usually taxed through the individual on their income.
- A partnership, which is created by two or more people engaging in business for profit. Every owner is personally liable for the debts of the partnership. Profits are taxed as individual income.
- A sole proprietorship, which is a business owned by one person. The owner is personally taxed on income and is personally liable for the debts of the business.