Business Formation: Corporations
Starting a business in California comes with a major decision: choosing the right type of corporation. Entrepreneurs often ask, “What are my options for business formation?” and “Which structure best protects my interests?” Each type of corporation in California comes with advantages, disadvantages, and legal requirements. Lynnette Ariathurai is a California business formation lawyer with extensive experience working with corporations. In this article, you will find an overview of the corporate forms in California.
An Overview of the Difference Types of Corporations in California
C Corporation
If you hear the term “corporation” used broadly, the speaker is often referring to a C corporation. It is the standard corporate business structure in California. Business owners choose this type when they want strong liability protection and the ability to raise capital from investors. A C corporation exists as a separate legal entity. Why does that matter? It means that shareholders are not personally responsible for a company’s debts or other liabilities. Further, the structure allows for unlimited shareholders. That makes the C corporation form attractive for businesses planning to grow, issue stock, or to someday go public. On the other hand, C corporations do face double taxation. They are taxed first at the corporate level and then at the shareholder level when profits are distributed as dividends. Further, overall compliance is more complex than other entities, requiring annual meetings, minutes, and formal record-keeping. If you have any questions about creating a C corporation, our California business formation attorney can help.
S Corporation
The S corporation is another corporate form. It offers many of the same liability protections as a C corporation but provides a different tax structure. Business owners in California often choose this type to avoid double taxation. An S corporation allows profits and certain losses to “pass through” directly to shareholders, who report them on their personal tax returns. There are some cases in which setup can lower overall tax burdens. That is especially true for some small and medium-sized businesses. However, unlike a C corporation, an S corporation comes with strict eligibility requirements. Shareholders must be U.S. citizens or legal residents, and the number of shareholders cannot exceed 100. Further, only one class of stock may be issued. An S corporation still requires formalities such as board meetings, record-keeping, and annual reporting. It can be more expensive to maintain than an LLC. If you have questions about creating an S corporation, our California business formation lawyer can help.
Professional Corporation
A professional corporation in California is a specialized entity designed for licensed professionals such as doctors, lawyers, accountants, architects, and other regulated fields. The state requires many licensed service providers to form professional corporations instead of LLCs or standard corporations. By forming a professional corporation, owners protect themselves from liability for business debts and obligations, while maintaining accountability for their own professional conduct. A professional corporation has similar formalities to a C or S corporation, but the owners (shareholders) and operators (officers and directors), as well as the transferability of the shares are limited to qualified people.
Contact Our California Business Formation Lawyer for Corporations Today
Lynnette Ariathurai is a top business formation attorney. If you have any questions about corporations, we can help. Contact us today for a fully confidential, no obligation initial consultation. With an office in Fremont, we provide corporation formation services throughout the Bay Area.