A business can exist in various forms. This post will talk about the main types of business entities including a sole proprietorship, partnership, limited liability company incorporation.
1. Sole Proprietorship
The sole proprietorship has a single owner. It is the simplest form of business enterprise. The owner has total control over the management of the business. This form of business terminates on the death or withdrawal of the owner or when the assets are sold. Additionally, a sole owner is personally liable on all the contracts of the business and is personally responsible for all of the debts. Use of a proprietorship is not generally recommended absent sufficient insurance and business activities that are highly unlikely to result in personal liability to the proprietor.
A partnership is an association of two or more individuals to carry on a business as co-owners. A general partnership is the most common type of partnership. In this type of partnership, each general partner is typically actively involved in the business. Formation of a general partnership requires the partnership agreement. It is highly recommended that a partnership agreement be written to clearly state the terms of the parties’ agreement. Additionally, partners are exposed to personal liability for the obligations of the partnership.
3. Limited Liability Company (LLC)
An LLC is a hybrid of a partnership and a corporation. While not required, a written Operating Agreement is highly recommended to clarify terms related to the operation and governance of the LLC. The owners of an LLC or the members. An LLC can be managed by the members or by appointed managers. Regardless of the management structure of the LLC, generally, the LLC members or its managers are not personally liable for the debts or obligations of the LLC.
There are several types of California corporations including for-profit, close, “C”, “S”, professional corporations and nonprofit. The benefits of having a corporate entity is centralized management through a Board of Directors with decision-making authority. The owners of a corporation are the shareholders. Shareholders have limited liability for the debts of the business. Officers may be elected to assist with daily business operations. Death or withdrawal of one or more shareholders will not automatically cause the termination of the corporation.
Shareholders who want the limited liability of the Corporation without as many procedural formalities may elect to form a “statutory close corporation.” California require that this type of corporation must to limit the number of shareholders and the shares have restrictions upon transfer. A statutory close corporation may structure it entity by agreement where the shareholders have more flexibility regarding the management of the business, voting rights, restrictions on the transferring of shares and other formalities.
Use an Attorney to Help Protect your Business
It can be difficult to decide which entity best fits your business goals. Our experience can educate you and your business regarding the various entity types. We assist business owners and businesses so you keep your attention on the business and avoid costly legal issues. Contact us with to learn more at (925) 463-9000 or send an email.
Lisa Wills of the Law Offices of Lisa D. Wills is a skilled business law attorney in Pleasanton, San Ramon, Livermore and Danville, California helping to educate businesses and their owners. If you have questions concerning your business, contact Lisa Wills at the Law Offices of Lisa D. Wills or call (925) 463-9000.