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Best Business Type As A licensed Professional In California

Like most states, California is full of professionals such as optometrists, doctors, attorneys, psychologists, architects, psychiatrists, and others. However, in California, professionals have only three options when it comes to choosing a proper structure for the business.

You can choose one from partnerships, proprietorship, and professional corporations. So, which is the best business type as a licensed professional in California?

Well, the answer is not that simple. Each of the options has its pros and cons. But after you go through this guide, things can get easier as we will talk about everything you need to know regarding each type.

Different Types of Business Available for Professionals in California

As we mentioned earlier, you only have three different business-type options as a professional. And to get a concrete idea of which one should be your go-to option,
you need to have an in-depth picture of each. So, let us get into that without further ado, shall we?

For further help, you can contact me today at sam@mollaeilaw.com to start your business today.

Professional Corporations

Shareholders create corporations. A corporation has a separate legal entity. And in this business type, the owners will not be personally liable for the legal disputes or debts of the company.

Now, just like partnerships, there are different types of corporations.

First, there is the C Corporation. It is the most common form of corporation. And this type of corporation will be taxed as a business entity. Moreover, the owners that receive the profits will also be taxed individually.

Secondly, there is S corporation, which is pretty similar to C corporation.

However, it can only consist of 100 shareholders. At its core, the S corporations are pass-through entities, just like partnerships. For that reason, the profits will not need to be taxed twice.

Lastly, there is a non-profit corporation. It is the go-to option for charitable organizations. And as you might have guessed, non-profit corporations are exempted from taxes.

Considering that, the owners must spend all of the incoming cash flow on future plans and the organization’s operations.

Pros of Professional Corporations

For C corporations, the only liability for the shareholders is the amount of money they will invest in the corporation. On the other hand, for S corporations, the profits and losses will be divided among all shareholders.

Cons of Professional Corporations

Formalities must be followed for both the C corporation and S corporation to protect the assets of the shareholders. Also, a corporation is not that easy to create.

There are a large number of complications. Corporations also need to draft articles of incorporation, which need to include all critical information.

For further help, you can contact me today at sam@mollaeilaw.com to start your business today.

Proprietorship

Among all the structures, the proprietorship is the one that stands out the most. The reason behind that is that it is a one-person business. And even though it is the most basic type of business, it offers the owner a comparatively lower amount of legal and financial protection.

You can not create a separate identity for your business compared to corporations or partnerships. Instead, as an owner, you will share the same identity as the company. However, there is an option to use a “DBA” without a formal entity.

Pros of Proprietorship

The main highlight of proprietorship is how simple it is. It is a comparatively inexpensive and hassle-free process to establish a business. That is why most entrepreneurs choose this option. It also allows the owner to retain complete control of the company.

Furthermore, there are tax benefits. How so? The income will be considered as personal income for the owner. And for that reason, the owner will only need to pay tax once.

Also, there are comparatively fewer regulation requirements for proprietorship.

Cons of Proprietorship

Concerning the cons of proprietorship, it is all about the legal separation. There will not be one between the business and the owner.

For further help, you can contact me today at sam@mollaeilaw.com to start your business today.

Partnerships

As the name suggests, two or more people will own a partnership business. Each will be a partner. That said, there are mainly three types of partnership. First, there is the general partnership, which is the easiest type of partnership.

In a general partnership, each partner must participate in the business’s operations. And in this criterion, there is an unlimited amount of liability for each partner.

That means the partners can use their personal assets to repay the business’s liabilities. It also means that each partner is responsible for all of the actions.

Secondly, there is a limited partnership. This type will have at least one general partner. And that partner will take on unlimited liability for the business and will manage the operations of the company.

For further help, you can contact me today at sam@mollaeilaw.com to start your business today.

Now, when it comes to the limited partners, they will only take as much liability as their financial stake allows them to.

However, as limited partners, each partner will not be capable of getting themselves involved in managed decisions. Also, the limited partners will not have direct control over the company.

Lastly, there is the limited liability partnership. It is pretty similar to a general partnership. In other words, in LLP, multiple partners will be responsible for the business’s operations.

However, the partners will not be personally liable for the actions of the other partners.

That said, LLP is not possible for all businesses. In fact, it is usually restricted to certain professions, which include accountants or lawyers.

Pros of Partnerships

Like proprietorship, a partnership business can take advantage of the flow-through taxation. That means the income will be treated like the owner’s personal income. For that reason, partners will need to pay the tax once.

Cons of Partnerships

For the cons, the tax liabilities will be passed to the individuals in partnerships. This passing of the liabilities can make the business type a no-go for some professionals.

For further help, you can contact me today at sam@mollaeilaw.com to start your business today.

What About LLC?

In California, professionals are not allowed to form an LLC. This prohibition is because the professionals in California are held to a higher standard.

The professionals have the responsibility to uphold the safety of the public. That is why the California Legislature prohibits professionals from limiting their liabilities for the mistakes that professionals make.

Which Is The Best Business Type for A Professional?

The proprietorship should be your go-to option if you want an easy setup. It should also be your only option if you and only you want to own the business.

However, if you’re going to work with a partner or couple of partners, you should consider the partnership business type.

That said, corporations are not easy to establish. So, unless you have shareholders and other things ready, you should not venture into this type of business.

For further help, you can contact me today at sam@mollaeilaw.com to start your business today.

Conclusion
You need to weigh your options for choosing the best business type as a licensed professional in California.

And as a professional, you only have three options in California. Also, do not pull the trigger without considering all of the pros and cons of each business type.

 

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