Starting any new business in California is a challenging and complex task. Product decisions must be made. A marketing strategy must be developed. Capital must be acquired, through personal assets or by fundraising. Needs for offices or warehouse space must be addressed. Then there are accounting decisions to be made. What type of business entity will you be? This is a vital and important decision for any business. This choice will affect personal assets, income for tax purposes, and almost every aspect of the business.
Choosing Your Business Entity Type
Different types of business entities report income differently and are treated differently for tax and legal purposes. For some, such as sole proprietorships and partnerships, business income flows directly through to the individual owner(s). But possible liabilities do so as well. In sole proprietorships and partnerships, personal assets of the owners are not protected from claims against the business. In most corporate entities, owners are protected from claims against their personal assets. The corporation itself is a taxable entity, and profits are not directly taxable to the owners until they are distributed as dividends, salary, or in some other manner. Probably the greatest downside of corporate structure is double taxation. Earnings are taxable to the corporation, and then once again to shareholders or owners when distributed. Also, the paperwork required to form a corporation is usually more complex, costly, and time consuming than that required for sole proprietorships or partnerships. There are several corporate structures, the Limited Liability Company (LLC) and the S Corporation, which offer protection for personal assets, yet allow income to pass through to the individuals and only be taxed once. Could one of these choices be the best of both worlds? Maybe. This is a decision that shouldn’t be made lightly. The ramifications of business entity choice will echo through every part of your business.
California Seller’s Permit
Regardless of the type of business structure that you decide upon, in California, if you sell tangible goods, or items subject to sales tax, you must obtain a California seller’s permit. There are a few pieces of information you must provide to take advantage of abusiness and personal filing service. These include the type of business entity, the business name, the driver’s license number of the owner or primary officer, the business address and phone number, the social security number of the owner, and projected monthly sales. After this information is provided, the convenient service can rapidly and efficiently error check and expedite the permit acquisition process for you!
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