As a North County San Diego business attorney, I am often asked:

“What kind of business should it be?” It usually depends on the type of business you want to do. The business entity type should reflect the type of business you conduct.

“What business entities are commonly used?” In general, there are six most common business entities used today, which are:

Single owner

General Society

limited liability company

limited liability company

Corporation

Subchapter S Corporation

“What is the difference between the different types of business entities?” Here’s a breakdown of the differences:

1. SOLE PROPERTY

SOLE OWNERSHIP = is a business that is owned and operated by an individual. Sole proprietorships are the basic forms of business organizations, which do not require any type of formal government filing to form the business and are not required to follow any type of operational formality.

The PROFIT = of a sole proprietorship is the taxation of business income and the deductibility of business losses on the business owners’ individual tax returns.

The LIABILITY = of a sole proprietorship is that the owner of the business is personally responsible for all liabilities and obligations of the business, liability which extends, not just to liabilities in excess of amounts invested in the business, including any liability coverage. insurance, but also to the personal assets of the business owner.

2. GENERAL PARTNERSHIP

A GENERAL PARTNERSHIP = is an association of two or more persons to carry on a business. A general partnership is another type of business entity that is easy to form but requires a written partnership agreement to govern the operations of the partnership and the relationship between the partners.

COMPLIANCE REQUIREMENTS = for a partnership are minimal and require that an Information Statement be filed with the State and the partnership maintain records to provide to partners in connection with the proper exercise of the partner’s rights and duties under the partnership agreement .

ADMINISTRATION = in a general partnership is extended to each partner so each partner is an agent of the company and their actions generally bind the company.

The LIABILITY = of a general partnership is that a partner’s liability extends not only to that partner’s percentage interest in the business, but also to the partner’s personal property.

3. LIMITED PARTNERSHIP

A LIMITED PARTNERSHIP = is a partnership formed by two or more persons that has one or more general partners and one or more limited partners as co-owners of a business. A written partnership agreement must be established between the company and its partners and a written partnership agreement must also be established between the partners themselves establishing the classes of general or limited partners.

COMPLIANCE REQUIREMENTS = for a limited partnership more formal filings with the State are required, such as filing a Certificate of Limited Partnership and obtaining an agent for service of process.

MANAGEMENT = in a limited partnership extends to one or more general partners who have sole management authority thus limiting the limited partners’ decisions in the business.

The LIABILITY = of a limited partnership is that the general partner is personally liable for the debts, obligations and liabilities of the partnership. However, the limited partnership allows limited partners to avoid subjecting their personal assets outside of their investment. A limited partner is granted limited liability as long as the partner does not participate in control of the business of the partnership.

4. LIMITED LIABILITY COMPANY

A LIMITED LIABILITY COMPANY = is an entity having one or more members, organized under state statute. Limited liability companies have all the powers of natural persons, including the ability to transact business, sue or be sued, enter into contracts, own and transfer real property, and issue shares subject to limitations.

COMPLIANCE REQUIREMENTS = for a limited liability company more formality is required in formation and operation, such as, filing Articles with the State, filing a Declaration of Information with the State, obtaining an agent for service of process, and establishing an agreement operational.

ADMINISTRATION = in a limited liability company it can be carried out by all its members or by an administrator. Officers may be appointed to carry out business affairs.

The LIABILITY = of a limited liability company is limited to all its members, administrators and officers. As long as State legal requirements are met, company members, managers, and officers are not personally liable for any company debt, liability, or obligation arising in contact, tort, or otherwise solely because of being a member, manager, or official. of the business.

5. CORPORATE

A CORPORATION = commonly known as a C or regular corporation, is by far the most common and well-known form of business entity. All corporations are governed by the State of incorporation and are treated as separate and distinct legal entities from their owners with all rights to own, contract and sue in their own name.

COMPLIANCE REQUIREMENTS = Strict compliance with laws is required for a corporation, such as filing Articles of Incorporation with the State, filing an Information Statement with the State, obtaining an agent for service of process, establishing bylaws, issuing shares, establishing a board of directors, appointment of officers, holding annual meetings of shareholders, holding annual meetings of directors, and keeping books and records of written minutes.

MANAGEMENT = in a corporation it is generally carried out by the board of directors with the daily operations of the business handled by the officers. Overall decision making rests with the shareholders of the company.

The LIABILITY = of a corporation is limited to all of its shareholders and the shareholder’s personal liability is limited to the investment. As long as State legal requirements are met, the company’s shareholders, directors and officers are not personally liable for any debt, liability or obligation of the company arising in contact, tort or otherwise.

6. SUBCHAPTER S CORPORATION

A SUBCHAPTER S CORPORATION = commonly known as an S corporation, is a corporation that has elected to pay taxes under Subchapter S of the Internal Revenue Code and is treated as a partnership for most tax purposes. The income of the S corporation is passed on to its shareholders, thus avoiding double taxation. Other than the different tax treatment, the S corporation operates identically to a regular or C corporation.

THE COMPLIANCE REQUIREMENTS = for an S corporation are identical to those for a regular or C corporation, however, for a corporation to qualify as an S corporation certain requirements must be met.

MANAGEMENT = in an S corporation is identical to that of a regular or C corporation.

The LIABILITY = of an S corporation is identical to that of a regular or C corporation.