A sole proprietorship offers the most flexibility and greatest freedom of all the business forms. However, some drawbacks of a sole proprietorship are lack of liability protection and difficulty in obtaining financing, either debt or equity to fund your enterprise. All income and expenses attributable to the business is reported on your personal income tax return, utilizing schedule “C.”
A Domestic Stock Corporation, taxed as either a S corporation or a C corporation, offers both liability protection and increased ability to attract and secure both debt and equity financing. Corporate formalities, however, must be observed in order to keep any liability protection, so business owners must clearly understand those formalities. In California, corporations operating within the state are subject to a “minimum” tax of $800 annually, whether or not any revenue is generated by the business.
A Limited Liability Company, or LLC, is a common entity to select for business owners who wish to obtain liability protection, but do not wish to maintain the formalities of a corporation and do not need to attract a large number of potential investors. Easy to set up and easy to maintain, LLCs are often the “go-to” entity type for many business owners, and can be set up with a “single” member, or with multiple members. As is true with corporations in California, LLCs operating within the state are also subject to a “minimum” tax of $800 annually, whether or not any revenue is generated by the business.
Also known as a “social enterprise,” California Benefit Corporations and Social Purpose Corporations may have the same treatment as a Domestic Stock Corporation for income tax purposes, but their built-in corporate DNA has been enriched with social purposes, which may include promoting environmental stewardship, improving educational programming or services, or simply ensuring a business is structured to “give back” to its community. Our Social Enterprise Practice Group are experienced legal practitioners with a depth of legal and professional knowledge in forming and advising these hybrid corporate forms.