1. Choosing your Business Entity
Sole Proprietor
Partnership
Limited Partnership
Limited Liability Company
Corporation
Each has its advantage and disadvantages.

2. Sole Proprietor Simplest form of doing business.
It is not an entity in itself, it is the individual who owns the business and
Who is personally responsible for its operations and debts.

3. Sole Proprietor (Advantage)
Complete control of the venture – The business owner can run the business as he or she chooses.
Little or no organizational cost – Sole proprietorships may be form without any special legal formalities. Must file and publish a fictitious business name statement if the business is being operated under a name other than the personal name of the sole proprietor in the county in which the business is operating.

4. Sole Proprietor (Advantage)
Tax and Income Advantage – The profits and tax advantages of the business are passed directly to the sole proprietor. The sole proprietor’s personal income tax return will list all the business’s income and expenses.

5. Sole Proprietor (Disadvantage)
Personal Liability – The sole proprietor are faced with personal liability if the assets of the business are insufficient to cover the claims of the business’s creditors.
Community property are subject to attachment – Not only do they subject their own personal property to creditor’s claims but also their spouse’s half of any community property may be subject to the claims of the business’s creditors debt.

6. Sole Proprietor (Disadvantage)
Credibility -- Potential clients are frequently wary of doing business with a sole proprietor as a failure to set up a corporation, LLC or partnership suggests a lack of resources.
Tax Withholding – A number of businesses will not retain sole proprietors as independent contractor for fear that The Franchise Tax Board or the IRS will reclassify “independent contractor” as an employee and demand payroll tax withholding.

7. Sole Proprietor (Disadvantage)
Sole proprietor independent contractors have also sued large companies and demand benefits, with is another reason why people prefer to do business with corporations or LLCs. Consequently, your failure to incorporate or set up an LLC could cost you business.

8. Partnership
A form of entity in which two or more co-owners engage in operating a business.

9. Partnership (advantage)
Greater pool of resources – Each of the partners may bring to the partnership his or her individual wealth with which to create a financial base for the business.
Little Organizational Cost – Little structural organization or formality required for a partnership. No filing is required with the state. No requirements to maintain paperwork, such as the minutes and other corporate filings.

10. Partnership (advantage)
The partnership may simply be created by a contract signed by all of the partners. No written partnership agreement is required, although one is strongly recommended.
No restriction on the number and nature of partners
Profits earned passed directly to the partners- profits earned by partnership are passed directly without the double taxation as in a corporation.

11. Partnership (Disadvantage)
Personal Liability – If the debts of the partnership exceed the assets, creditors or the partnership may pursue the individual partners to satisfy partnership debts.
Binding partnership – One partner may act on behalf of the partnership simply by signing a contract. So, even when the partners do not agree on taking a particular action, one partner may still make agreements that can bind all partners.

12. Limited Liability Company(LLC)
Effective Sept 30, 1994 in California
For federal and California tax purposes, a California LLC with one member is disregarded and the single member LLC tax information is reported on a single member’s personal tax return.
LLC pays no federal tax

13. Limited Liability Company(LLC)
California charges $800 for the privilege of doing business. Plus a income tax that come into effects after $250,000 in annual gross revenue.

14. LLC (advantages) Avoid double taxation
Limited liability – if your business are prone to personal exposure to lawsuits
Not subject to the ongoing formalities of a corporation:
Example: not required to hold annual meetings of the board of directors

15. LLC (disadvantages)
LLC entity is not available for licensed professionals (i.e. business licensed, attorneys, accountants)
More expensive to set up than Sole Proprietor.

16. What is a Fictitious Name?
A name that does not include the surname of the individual.
John Smith – business owner
ABC Tax – Fictitious name.

17. Fictitious Name (cont.)
File with Clerk Recorder.
File no later than 40 days from time you start business. (O.C.)
File an affidavit of publication within 30 Days. (O.C.)
Expires 5 years from date it is filed. (O.C.)
File by mail or in person.
Search Fictitious Name.

18. SS-4 The form you fill out to apply for the EIN
EIN = Employer Identification Number
Online or by fax or by mail

19. Do I need an EIN? Started a business Hire employees
Opened a bank account
Changed type of organization
Purchased a going business
A single Member LLC
A S Corporation