Why You Need A Business Entity

Written by Richard A. Chapo

When starting or expanding a business, many owners wonder if they should form a business entity and, if so, which one they should use. There is a wide variety of information and "pitches" being made onrepparttar Internet regardingrepparttar 141402 benefits of certain entities versus others. When you cut throughrepparttar 141403 flak, however,repparttar 141404 primary reason for forming a business entity is to create protection from personal liability arising from your business activities.

It is well established that up to eighty percent of businesses will fail in their first two years. Many of these businesses, and probably yours, carry a high level of personal risk for their owners. If you are not usingrepparttar 141405 correct entity for your particular business, you are going to be personally liable ifrepparttar 141406 business fails. Do you want to expose your home, car and other assets? How aboutrepparttar 141407 assets owned by your spouse or their paycheck from a regular job? Selectingrepparttar 141408 correct entity for your business prevents such nightmares from occurring. More importantly, you can sleep at night knowing thatrepparttar 141409 worst thing that can happen is losing your investment inrepparttar 141410 business, not your home.

Business Structures

There are a number of business structure options that exist inrepparttar 141411 modern corporate world. Following is a short explanation ofrepparttar 141412 most common business structures.


Corporations come in two basic forms, a "C" corporation and an "S" corporation. There are a variety of differences, butrepparttar 141413 central one is a tax issue. Briefly put, "C" corporations are taxed on their revenues and you are then taxed separately on any money you take out ofrepparttar 141414 corporation. An "S" corporation “passes through” all taxes torepparttar 141415 shareholders withrepparttar 141416 information being reported on your personal tax returns.

Regardless ofrepparttar 141417 tax classification, a corporation is considered an independent entity from a legal standpoint. This independent status acts as a shield betweenrepparttar 141418 activities ofrepparttar 141419 business and your personal assets. As a practical example, Kmart recently filed bankruptcy. The individual shareholders were not required to file bankruptcy and lost nothing more than their investment inrepparttar 141420 stock ofrepparttar 141421 company. Forming and using a corporation for your business activities will haverepparttar 141422 same effect, to wit, your personal assets will not be wiped out ifrepparttar 141423 business fails.

Limited Liability Company

A limited liability company, or "LLC" as it is better known, was a very popular entity choice inrepparttar 141424 early 1990s. LLCs are similar to corporations, but can be taxed as a partnership. In California,repparttar 141425 LLC can have either one owner or two. Regardless ofrepparttar 141426 number, these owners carryrepparttar 141427 legal title of "member.” The LLC provides a shield for your personal assets just like a corporation.

California Limited Liability Company – An Overview

Written by Richard A. Chapo

Many people are surprised to learn thatrepparttar LLC business entity is a fairly recent phenomenon. Wyoming wasrepparttar 141401 first state to legislaterepparttar 141402 creation of LLCs in 1977. Most states didn’t jump onrepparttar 141403 LLC bandwagon until 1988 whenrepparttar 141404 IRS classifiedrepparttar 141405 LLC as a pass through entity for tax purposes. This ruling turned LLCs intorepparttar 141406 popular monster they are today. Now every state has legislation allowingrepparttar 141407 creation of LLCs and California is no different.

What Are The Advantages To Forming A LLC?

The LLC business entity offers many advantages to small businesses. An LLC is going to provide a shield between your business activities and personal assets identical to a corporation. Unlike a corporation, there are far fewer corporate formalities. Instead of setting up payroll, you can take draws fromrepparttar 141408 entity. You are not required to maintain a balance sheet, although this is recommended. In short,repparttar 141409 LLC entity is all about flexibility.

Should I Form A California LLC For My Business?

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