One of the most important steps in starting a business is creating a business plan. A business plan provides a clear overview of what a business is, where it is heading, and how the business owner plans to get it there. Do not overlook the importance of a business plan. Not only will it help you guide your company and promote growth, but also most banks require it to get a loan. When you put together your business plan, you will need to decide on (1) the legal structure of your business and (2) its name.
You have several different options for your legal structure. The structure you choose will influence your business' tax status, your tax filings, the liability you are individually exposed to, and the way you divide up your earnings. Thus, based on the goals and vision of you and your business, you should weigh the pros and cons of the most common business structures available to you:
Sole Proprietorship is set up to allow an individual to own and operate a business by him/herself.
General Partnership must have two or more persons engaged in a business for profit.
Limited Partnership is formed by two or more people, with at least one person acting as the general partner who has management authority and personal liability, and at least one person in the role of limited partner who is a passive investor with no management authority.
Limited Liability Company is a hybrid business entity. It has a separate legal existence and generally offers liability protection to its owners.
Limited Liability Partnership is an arrangement where the partners enjoy some protection against personal liability. Each partner must be a person licensed under California laws to engage in the practice of public accountancy, law or architecture.
Corporation is a separate legal entity owned by shareholders who enjoy protection from personal liability.