Starting a business in Los Angeles can be a thrilling adventure, but selecting the right entity type for your business is essential. Fortunately, by leveraging the expertise of experienced business attorneys, entrepreneurs and business owners can make an informed decision when selecting the legal structure of their organization. This article provides a comprehensive breakdown of the two most common types of business entities – LLC and S Corporation – and the considerations that business owners in Los Angeles need to make based on local regulations.

LLC, or Limited Liability Company, and S Corporation, are two of the most common types of business entities in the United States. Each of them offers its own distinct benefits for business owners, and selecting the right one for your Los Angeles company requires careful consideration of their individual advantages. This article removes the guesswork by providing the insights and information that small business owners in Southern California need to make the right decision, based on their respective goals and objectives.

When it comes to the legal aspects of starting a business, LLC and S Corporation are the two most common structures used by entrepreneurs and small business owners in the United States. These companies offer different advantages for owners, and selecting the right option is essential for minimizing risk and maximizing potential. This article provides insights and information on the two most common types of entities for those located in Los Angeles, to help entrepreneurs understand their options, when it comes to their company’s legal structure.

The most important difference between an LLC and S Corporation is the taxation structure. An LLC is considered a pass-through entity, meaning that the profits of the company are reported on the owners’ personal income taxes. By contrast, income from an S Corporation is taxed separately from the owners’ income and is only taxed once at the corporate level.

This distinction is especially important for business owners located in California. LLCs are subject to a franchise tax of $800 plus a marginal tax rate that ranges from 1.30 to 12.30%, depending on the income earned from the company. On the other hand, S Corporations are subject to federal taxes, but not franchise taxes in California, resulting in a potential cost savings for owners.

The taxation structure of LLCs and S Corporations have important regulatory implications for businesses based in Los Angeles. For example, a business that expects to earn a lot of revenue may find that incorporating their business as an S Corporation is more cost effective than forming an LLC, as the double taxation of an LLC may create an untenable situation. On the other hand, a small business that is just getting starting may find the ease of formation and overall simplicity of an LLC more attractive than an S Corporation.

Another key distinction between LLCs and S Corporations is a limited liability. LLCs provide some level of protection from personal liability for owners, however, some states include exceptions, such as California, which imposes restrictions on the circumstances in which an LLC cannot provide limited liability protection.

Meanwhile, S Corporations provide greater protection from personal liability for shareholders, and under California law, shareholders of an S Corporation cannot be held personally liable for debts and liabilities of the organization. However, caution should be exercised when incorporating an S Corporation, as owners may still be held liable for their personal negligence in allowing the company to act in an unlawful or dishonest manner. Lastly, shareholders of an S Corporation must be kept separate from the corporate entity and cannot enter into contracts, provide goods, or be paid as employees on behalf of the company.

When selecting an entity structure for their Los Angeles business, it is also important to consider potential regulations and oversight from the state of California. LLCs are typically less regulated than S Corporations, meaning that businesses may not be subject to certain state laws and requirements. However, LLCs may still be required to comply with regulations that are imposed by California and other states in which a business operates or has employees.

On the other hand, S Corporations are subject to a greater number of regulations and must remain compliant with state and federal laws, reporting requirements, and shareholder regulations. Additionally, S Corporations are also required to hold a yearly shareholders meeting, and keep detailed records of the meetings, which may be subject to examination by the California Secretary of State.

Ultimately, selecting an LLC or S Corporation for your business is a decision that should be made with the assistance of experienced business attorneys, who can help business owners make an informed decision, based on their individual needs, goals, and objectives. LLCs and S Corporations each offer distinct advantages for business owners in Los Angeles, and consulting with professional attorneys is the best way to ensure that the business is set up correctly and remains compliant with local regulations.

Topics:

LLC,

S Corporation,

Los Angeles