La Verne: How You Own Your Business Has A Big Impact

Press release from the La Verne Chamber of Commerce:

August 17, 2020

There are four common forms of ownership for small businesses and their filing requirements: sole proprietorships, general partnerships, limited liability companies, and corporations. How you form your company can depend on your risk tolerance and your personal assets that could be at stake.

Everyone has different personal assets (home, vehicle, savings, etc.) and a different level of comfort with risking these assets. Generally speaking, sole proprietorships and general partnerships are cheaper and easier to setup, but there is no limit to liability for owners. By contrast, LLCs and Corporations can be more expensive and a little harder to setup, but they limit liabilities for owners. In either case, you’ll likely still want to look into business insurance to help protect your investment.

Generally, there is an initial cost to set up the business and annual costs to maintain the business depending on the form of ownership. Setup costs include the fees associated with filing forms, creating documents like by-laws/operating agreements (if necessary), etc. Maintenance costs can include annual fees, taxes and tax preparation expenses to maintain the business. Some forms of business offer “pass-through taxation” and some don’t. Whether you do-it-yourself or hire someone to set up the business, be sure to research these types of costs depending on the form of ownership you choose.

How you plan to fund the business can be important to think about as you pick a form of ownership. How’s that? Well, if you need to fund your small business through a silent partner and “owners distribution”, an LLC may be good to protect the investor and keep your managing share. If you plan to give a percentage of ownership to others in exchange for equity, certain forms of ownership like corporations are better to facilitate these kinds of transactions.

Other factors to consider when setting up your business are regulatory agencies. For example, if you’re setting up a professional service business (i.e. - doctors, lawyers, architects, etc. that requires a state license) you may be required to operate as a professional service corporation. Other resources worth checking out is the Franchise Tax Board’s Guide to Common Forms of Ownership which lays out all the details for each form of ownership in California.

The Small Business Administration and the University of La Verne will present a free webinar on business ownership on Wednesday, Aug. 26, from 10:00-11:30 a.m. To register, click here.

This press release was produced by the La Verne Chamber of Commerce. The views expressed are the author's own.