Decide What Type Of Business

The first thing that you have to decide is what type of business that you want to have. There are several different types of businesses, and it is a good idea to research each type thoroughly before making your decision. It might also be a good idea to hire a professional, like an attorney or an accountant, to help you make that decision. The best place to start your research to find out which type of business is right for you is the Secretary of State's website in your home state.

There are six different types of businesses that are listed on the California Secretary of State's home page. They are Sole Proprietorship, Corporation, Limited Liability Company, Limited Partnership, General Partnership, and Limited Liability Partnership. The information below was provided by the California Secretary of State's Website.

Sole Proprietorship
A sole proprietorship is set up to allow an individual to own and operate a business by him/herself. A sole proprietor has total control, receives all profits from and is responsible for taxes and liabilities of the business . If a sole proprietorship is formed with a name other than the individual's name (example: John Smiths Fishing Shop), a Fictitious Business Name Statement must be filed with the County Clerk or County Recorder where the principal place of business is located. If the principal place of business is located outside California, the name will be filed with the Sacramento County Clerk-Recorder. No formation documents are required to be filed with the Secretary of State. Other state filings may be required depending on the type of business.

Corporation
A Corporation (Domestic - Articles of Incorporatin/Foreign - Statement and Designation) generally is a legal entity which exists separately from its owners. While normally limiting the owners from personal liability, taxes are levied on the corporation as well as on the shareholders. The sale of stocks or bonds can generate additional capital and the longevity of the corporation can continue past the death of the owners. Legal Counsel should be consulted regarding the variety of options available for formulation.

Limited Liability Company
A Limited Liability Company (Domestic - LLC-1/Foreign - LLC-5) generally offers liability protection similar to that of a corporation but is taxed differently. Limited Liability Companies may be managed by one or more managers or one or more members. In addition to filing the applicable documents with the Secretary of State, an operating agreement among the members as to the affairs of the Limited Liability Company and the conduct of its business is required. Professional limited liability companies are restricted in California at this time.

Limited Partnership
A Limited Partnership (Domestic Certificate of Partnership - LP-1/Foreign Registration of Partnership - LP-5) may provide limited liability for some partners. There must be at least one General Partner that acts as the controlling partner while the liability of limited partners is normally limited to the amount of control or participation they have engaged in. General partners of a limited partnership have unlimited personal liability for the partnership's debts and obligation.

General Partnership
A general partnership (Statement of Partnership Authority - GP-1) must have two or more persons engaged in a business for profit. Except as otherwise provided by law, all partners are liable jointly and severally for all obligations of the partnership unless agreed by the claimant. Profits are taxed as personal income for the partners. Filing at the state level is optional.

Limited Liability Partnership
A Limited Liability Partnership (Registration of Limited Liability Partnership - LLP-1) is a partnership that engages in the practice of public accountancy, the practice of law or the practice of architecture, or services related to accountancy or law. A limited Liability Partnership is required to maintain certain levels of insurance as required by law.

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