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California Incorporation
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The Difference between a California
LLC, DBA and Corporation
Regardless of the state where you choose to incorporate, they
all offer the same entity options. In California you have the option
to be a California sole proprietor and work under a California
DBA, file articles
of incorporation and become a California corporation or file to become a California limited
liability corporation LLC.
Each type of entity is unique in paperwork, process and benefits.
A California 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 you plan to do business
under a name other than your own or DBA you will
need to file a Fictitious
Business Name Statement must be filed
with the California County where the principal place of business
is located. With this entity no formal documents need to be filed
with the state of California and you will claim all of your earnings
on your own personal taxes. The benefit to a California DBA is
that it is very inexpensive, requires only a limited amount of
paperwork, is not subject to franchise
tax and can be dissolved
easily. The drawback is that you are completely left open to liability,
which could impact your personal credit. There are also less tax
breaks and incentives for a California DBA.
A California domestic corporation (Articles
of Incorporation)
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. The process to file a C
or S class corporation requires your articles to be filed with California
Secretary of State or you can pay for a service to represent you
in this process. The benefits of becoming a California Corporation is that it limits your personal liability while giving you the
opportunity to obtain investor capital, obtain tax breaks and incentives.
California Corporations are
also not subject to the $800 minimum franchise
tax until their
2nd year of business. The drawback
is that you will need to file paperwork with the state that can
take up to 6 weeks to process (unless you use an expedited service);
you must also develop bylaws, have more than one member and may
need to file additional paperwork with the state of California
to report earnings and to dissolve your business.
A California domestic limited
liability corporation LLC generally
offers liability protection similar to that of a California corporation but
is taxed differently. Domestic limited
liability corporations 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 corporation and the conduct of its business
is required. The benefits of a limited
liability corporation LLC
is that since 2000 California allows LLC's with only one
member, plus all members are afforded limited liability and have
pass-through
taxes similar to a partnership. The drawback is that some types
of limited
liability corporations are restricted in California
and require that you pay the $800 minimum franchise
tax in
your
first year of business.
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