Pros and cons to consider when choosing a business type

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When choosing a business type, you can consider factors like:

• Control: How much control you want, and whether you want to make major decisions or have a board involved
• Liability: How much personal liability you want to be exposed to
• Taxes: Whether you want to be taxed as an individual or company
• Government requirement: How much you want to spend on professional  assistance
• Growth: How large you want your business to grow
• Raising capital: How you will raise capital for your venture
• Stock: Whether you’ll be bringing in shareholders and issuing stock to them
• Length of business: Do you plan on running your business for the long haul?

Some common business types include: 

• Sole proprietorship

A common business structure that’s easy to set up and doesn’t require state registration. However, the owner is personally responsible for all the debts and liabilities of the business.

Pros:  1) Easy to set up  2) No paperwork or ongoing requirements  3) Still can take qualitative business tax deduction  4) Filing taxes are less complicated and expensive

Cons:  No legal liability protection. If you get sued, they can come after your personal assets

• LLC

A good option for minimizing taxes early on and providing legal protection.

Pros:  1) Protects personal assets  2) No double taxation. Profits and losses are reported on personal

Tax returns  3) Easy to form

Cons:  1) California administrative and financial requirements  2)  Must file an annual statement of

information

• S-Corporation

Similar to a C corporation, but earnings are exempt from double taxation. S corporations are also protected from personal liability.

Pros: 1) Owners have personal liability protection  2) No double taxation or corporate tax rate to pay

3) No self employment taxes applied to distributions

Cons: 1) You are required to pay yourself a reasonable salary  2) There are limits to issuing stock

3) You still need to comply governments requierements  

• C-Corporation

A more complex business type that’s generally suggested for larger, established companies with multiple employees. The owners are called shareholders and elect a board of directors.

Pros:  1) Limited liability protection  2) Flat 21% tax rate  3) Eligible for more tax deductions  4) can

Offer stock options and shares

Cons: 1) More administration, tax complexity and costs  2) can face double taxation  3) A lot of

Government requirements

HOW TO START A SMALL BUSINESS IN LOS ANGELES