If you’re a young entrepreneur looking to form a business in the San Diego community, there are many things you’ll need to figure out. How many employees will you hire? Where will you establish your workspace? However, before you consider any of these factors, you’ll first need to determine the corporate structure under which your new business will exist.
Understanding Different Corporate Entities
First and foremost, it’s critical that you understand the various types of corporate entities available. There are five common types of organizational structures from which entrepreneurs can choose:
- Limited Liability Company
- Sole Proprietorship
- C Corporations
- S Corps
Limited liability companies are one of the most popular corporate structures for San Diego entrepreneurs. They provide owners with essential liability protection, shielding your personal assets from any business debts. Additionally, owners can elect pass-through taxation, potentially saving them significant money.
Partnerships are also pass-through entities, typically in place when there are two owners. However, owners should be mindful of liability protection. They are not protected from liabilities unless they elect to form as a Limited Liability Partnership.
If you are the only individual forming the company, you may want to consider a sole proprietorship. Typically, in the state of California, it’s easiest to establish a sole proprietorship. Not only does it require the least amount of paperwork, but it also costs the least to create. However, owners are not awarded liability protection. Additionally, if you wish to expand the business to include other owners, you’ll have to change corporate structures.
A C Corporation is much more challenging to create. C Corporations are often required to issue stock, either public or private. However, the ability to issue stock is attractive to investors, which could make it easier to raise capital. Pass through taxation is not permitted when forming a C Corporation.
Factors To Consider When Choosing A Corporate Structure
There are numerous things that you’ll need to consider when choosing a corporate structure for your new San Diego business. Each business owner may weigh the factors differently based on their personal situation.
One of the factors that most influences the corporate structure is taxes. Some entrepreneurs prefer not to be trapped into double taxation. And, if your expected income is lower than the corporate tax rate, it could be in your best interest to elect a structure that provides pass-through taxation.
Two other critical factors are time and money. Some structures cost more to set up than others, while others require more paperwork. If you’re looking to form a company quickly, you may elect something that does not need a rigorous setup process.
Consult An Attorney
There is nothing more frustrating than attempting to start a business, only to realize that you completed paperwork incorrectly. Not filling out paperwork correctly could delay the start time of your San Diego business, costing you valuable time and money.
It could perhaps be in your best interest to contact an attorney or other trusted legal entity when forming your business. An attorney is an investment well worth making, ensuring you remain compliant with California law.