Like most business owners, Richard Abboud prefers to spend his time focused on his business. As the owner of DiversityComm, a publishing company, Richard offers four magazines that cater to success-minded individuals. With more than 2.5 million readers, Richard stays busy. So when he needed help with his corporate records, he turned to Orange County business lawyer Andrew Gale for legal advice.
Referred to Andy by another client, Richard expressed his satisfaction with the service he received:
“He explains everything – what I should and should not do. I like his explanations – it’s easy. Business owners don’t like to spend a lot of time on stuff and he makes it as easy as possible to get important issues done quickly. That’s what I like about him.”
Legal advice for starting a sole proprietorship in California
If you’ve decided to start a business, you may not be aware of all the legal requirements. The state, county, and city all make laws affecting businesses, no matter how large or small. Even if you choose to open a small business, the regulations can be daunting. You may not know what to do first or how to get started.
If you’re thinking about starting a business as a sole proprietor, or DBA, there are four basic steps you can take to get your company started on solid ground. Following these steps will help you avoid problems and additional costs that might arise if you skip them. So what are the steps?
1. File for a fictitious business name.
A fictitious business name is a business name that doesn’t include your surname. So if you’d rather not use your surname in your business name, you must file a fictitious business name statement. File it in the county in which you plan to run your business.
Your fictitious business name must be published in a newspaper of general circulation. The newspaper you choose will provide proof of the published name.
2. Get a Federal Tax ID number from the IRS.
While a Federal Tax ID is not a legal requirement, it’s highly recommended. Without one, you’ll need to use your Social Security number for documents related to your business.
3. Open a bank account from a bank that specializes in business.
Opt for a business bank instead of the bank you use for your personal checking or savings account. A business bank offers services that make them the key to your success.
4. Get a business license from the city where you run your business.
This is the last step, but it’s an important one. Without the required licenses or permits from the city, you could face stiff fines or penalties.
Many entrepreneurs start out as sole proprietors. As their companies grow, however, they find that incorporating their small business becomes a necessity. A corporation offers tax advantages and personal liability protection that sole proprietorships don’t provide. Talk to a California business attorney to learn more. A corporate attorney can answer any questions you may have and provide guidance specific to your business.
In California, a Limited Liability Company (LLC) and a Corporation are two of the business structures that offer liability protection to the owners of the company. Although they are very similar, they have many important differences too. If you’re wondering which corporate structure you should choose, read through this article. This article is a comparison between LLCs and Corporations.
Business Incorporation in CA
What does it Mean to Incorporate a Business in California?
When a business incorporates, its business structure moves from being a sole proprietorship or general partnership to a structure wherein it becomes a separate entity from its owners. The law recognizes the company by its state of incorporation, which may either be a Limited Liability Company or a Corporation. There are various subtypes of corporations but the most popular types in California are S Corporations (S Corps) and C Corporations (C Corps). All of these 3 corporate structures offer the advantage of being protected from personal liability and having increased credibility with customers. As much as there are many advantages with these types of business structures, each also has its disadvantages.
1. Limited Liability Company
Limited Liability Companies in California
The owners of a Limited Liability Company are referred to as members. An LLC protects its members from being personally liable for any actions of the company. This means that if a lawsuit were to arise concerning the business, your personal assets are kept safe.
Unlike corporations, LLCs offer more flexibility in the management of the business. In corporations, there is a management structure that needs to be followed, like having directors oversee the major decisions that need to be made while officers are assigned with the daily operations of the business. LLCs, on the other hand, do not have this strict structure. The members may manage the daily operations or they can have an individual or a team assigned with the task.
In an LLC, pass-through taxation is applied. This means that taxes are not paid at the business level. Instead, the company’s income and losses are reported on the members’ tax returns. Taxes are paid, therefore, on the individual level only.
Unlike S Corporations, LLCs have fewer restrictions on who can be an owner of the business and on how many owners there can be. Moreover, LLCs have fewer state-imposed annual requirements and other formalities compared to corporations.
2. Corporations
Corporations in California
There are basically many types of corporations in California but the most popular types are S Corporations and C Corporations. The type of corporate structure you choose depends on the goals of your business.
Similarities between S Corporations and C Corporations
Basically, a C Corp is a regular corporation and an S Corp is a C Corp that has applied for a special tax status with the IRS. The S Corp gets its name because it is defined in Subchapter S of the Internal Revenue Code. In order for a C Corp to become an S Corp, it has to file Form 2553 with the IRS and meet all the S Corporation guidelines.
Both S Corp and C Corp offer liability protection to their owners. The shareholders, who are recognized as the company’s owners, are not personally responsible for any debts and liabilities that the business may incur. This is because both types of business structures are considered by the state as separate legal entities from their shareholders.
S and C Corporations have similar management structures. They both have shareholders, a board of directors, and officers. The shareholders are the owners of the corporation, and they elect the members of the board of directors. The directors are responsible for overseeing and directing corporate affairs and decision-making. Officers, on the other hand, who are elected by the directors, are responsible for the day-to-day operations of the company.
Differences between S Corporations and C Corporations
S Corps differ from C Corps in many ways, and the most prominent difference is in their taxation. C Corporations are separately taxable entities. Taxes are paid at the corporate level and therefore you must file a corporate tax return (Form 1120). In cases wherein a corporation’s income is distributed among the shareholders as dividends, double taxation may apply because dividends are considered as personal income. Tax, therefore, is first paid on the corporate level and then again at the individual level on dividends.
S corporations, on the other hand, are pass-through entities just like LLCs. S Corps need to file an informational federal income return (Form 1120) and no tax is paid at the corporate level. Instead, the profits and losses of the company are “passed through” the corporate level and reported on the shareholders’ personal tax returns. All taxes are paid at the individual level.
In terms of ownership, C corporations do not have restrictions while S corporations do. S Corps are allowed to have no more than 100 shareholders and all of them should be US citizens or residents. S Corps cannot be owned by C Corps, other S Corps, LLCs, partnerships, or trusts. Unlike C Corps, S Corps are not allowed to have more than one class of stock.
Other Differences between LLC, S Corps, and C Corps.
The advantage of being an S Corp is that business owners can use the losses of the company as deductions on their personal tax returns. Unlike C Corps, which are taxed as a completely separate tax entity, S Corps can also provide savings on self-employment, security, and Medicare taxes. S Corps allows the shareholders to offset their non-business income with the losses from the business.
LLCs and C Corps do not have restrictions on the number of allowed business owners but S Corps do. S Corps should have a maximum of 100 shareholders who are all residents and citizens of the United States. Unlike LLCs and C Corps, S Corps cannot be owned by C corps, other S Corps, LLCs, and certain trusts.
Many developing businesses in California often choose to be C corps instead of other business structures because the stockholders can hold different classes of stock interests including preferred and common stock. This variety in classes of stocks allows different levels of dividends. This also attracts venture capitalists and investors.
California Business Lawyer Andy Gale is an Incredibly Helpful Attorney.
California Business Lawyer Andy Gale is an Incredibly Helpful Attorney.
Written by: Andrew Gale
Date Published: 03/24/2014
Business Lawyer in Orange County Andy Gale “explains situations so a person unfamiliar with legal jargon can understand.”
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Business Lawyer in Orange County Andy Gale “explains situations so a person unfamiliar with legal jargon can understand.”
Posted by Leah, a business client.
I recommend Andrew Gale.
Andy is an incredibly helpful attorney. Really explains situations so a person unfamiliar with legal jargon can understand. Very thorough with his answers while talking you through situations. He covers all points of importance and helps to come up with solutions to your legal issues. He’s really easy to talk to and work with. Highly suggest working with him.
Limited Liability Companies (LLC) and S Corporations are two of the most common choices of business entities in Orange County, California. Learn about the differences between these two business structures by reading through this article.
How a Limited Liability Company is Formed
Filing for an LLC or a S Corporation?
An LLC is formed by filing certain documents with the California Secretary of State. In an LLC, the equivalent of a corporation’s articles of incorporation is called articles of organization. The articles of the organization should include information about the members of the company. All LLCs in California are required to have at least one member. Each member is considered an owner of the company. Just like the shareholders of a corporation, the LLC members’ liability towards the company is limited to what he or she has contributed to the business’ capital. The members of an LLC do not need to be individuals. They can be corporations, partnerships, or other LLCs.
In an LLC, the equivalent of a corporation’s shares or stocks is called membership interest. A member’s membership interests represent an ownership interest in the LLC. Generally, the value of one’s membership interest determines the extent of his or her control over the LLC.
LLCs are basically managed by their members. The extent of management depends on the weight of their membership interests. Although the members are generally the managers, many LLCs in California, however, have operating agreements that provide for a manager or a board of managers to run the operations of the company. It is the members of an LLC that appoints a manager, and also have the power to remove him or her from that position.
All LLCs need to have an operating agreement. An operating agreement is a document that determines, defines, and limits the rights of the members. In formulating an operating agreement, the members must discuss thoroughly, agree properly, and carefully draft the documents to avoid problems in the future. Hiring a competent business attorney in California is a good way to make sure that all the details of an operating agreement are covered correctly.
How an S Corporation is Formed
An S corporation or S Corp is a type of corporation that has chosen to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. To form an S Corp, a business needs to file articles of incorporation with the California Secretary of State. A federal tax ID and an S election should also be obtained.
For a corporation to be taxed under the Subchapter S of the Internal Revenue Code, the shareholders should obtain Form 2553: Election by a Small Business Corporation, have it signed by all of the shareholders, then file with the IRS.
For a business to qualify to become an S Corp, it needs to be an eligible entity (e.g. domestic corporation, LLC, etc.). Corporations cannot qualify to become an S Corp if they have more than one class of stock. Furthermore, they should not have more than 100 stockholders, and they all must be US citizens or residents. The stockholders of an S Corp are recognized as the owners of the company. Lastly, the business’ profits and losses must be allocated proportionally among its shareholders, according to each one’s interest in the company.
Management and Operation: S Corp vs. LLC
The Difference Between LLCs and S Corps
S Corporations are managed by a board of directors that are elected by the company’s stockholders. The daily operations of the business are managed by the officers, who are appointed by the board of directors. Limited Liability Companies, on the other hand, have more flexible management options. LLCs can be managed by either the members or a set of appointed managers. The style of management should be laid out in the operating agreement and include details of management duties and responsibilities.
Differences in Taxation
Employee Medicare and FICA taxes are not affected, regardless of the corporate structure of a company. But federal income tax treatments vary in both LLC and S Corp business structures. It is important to note that the corporate tax rate is generally lower than the personal income tax rate, but in a C Corp, double taxing applies. Double taxation happens because a C corporation is taxed on its profits, and then when the profits are divided among stockholders, they are taxed on their dividends.
S Corps, on the other hand, can bypass this double taxation. An S Corp should report the entire income of the company on the personal income tax returns of its stockholders. The distribution should be in proportion to the ownership of each shareholder in the company. Moreover, when this is done, the losses incurred by the S corporation should also be reported on the stockholders’ personal income tax return, which will consequently reduce their tax liability.
In an LLC, taxation is more flexible. An LLC can choose to be taxed as a C corporation or as an S corporation.
The shareholders of an S corporation need to report income on Form 1120S, salaries on Form W-2, and the profit distribution on Schedule K-1. In an LLC, the members need to report income on their personal tax Form 1040 Schedule C or Form 1065 and Schedule K-1 for the profit distributions. If an LLC chooses to be taxed as a C Corp, tax reporting of income should be on Form 1120, salaries on Form W-2, and the profit distribution on Form 1099-DIV.
Business Legal Counsel in California
Find Competent Business Lawyers in California Today
For a better understanding of Limited Liability Companies and S Corporations, you need to have the assistance of a competent business lawyer in Orange County, California. Gale & Vallance is a law firm based in Orange County that can assist your business in forming an LLC, an S Corp, or any other business entity. They also offer other legal services that your business might need, such as corporate record keeping, legal assistance in business transactions and contracts, etc. Contact them today at +1 (714) 634-4838!
Corporations in California
There are different types of corporations in California, and they are basically categorized as either profit or non-profit. Both federal and state laws make very precise distinctions between non-profit and for-profit corporations, as there are various structural differences in their organization, as well as differences with tax implications.
For-profit corporations are formed for the purpose of making money to benefit the individual shareholders of the business. Non-profit corporations, on the other hand, are formed for different purposes. The purpose by which a non-profit corporation is formed depends on what type of non-profit corporation it is, specifically.
Non-profit corporations are subcategorized as a public benefit, mutual benefit, or religious entity. A public benefit is formed for charitable purposes, like the Red Cross and the National Kidney Foundation. Mutual benefit corporations include professional organizations and entities like AARP and NAACP.
Structural Differences of Profit and Non-Profit Corporations
Both non-profit and for-profit organizations are formed through State Law and are governed by a board of directors, but the main difference in their structure is that for-profit corporations are owned by shareholders, while non-profit corporations are not. More specifically, non-profit organizations do not have any owners at all. A non-profit corporation’s assets are, in effect, held in a trust. Assets are also used to advance the specific purpose of the organization.
Although both kinds of corporations have a board of directors, the board of directors of a for-profit organization may have only one member, and non-profit organizations are required by the state to have two or more directors.
Differences in Tax Implications between Profit and Non-Profit Corporations
Non-profit corporations enjoy many tax benefits that are not available to for-profit organizations. One benefit is that if a non-profit organization qualifies under section 501(c) of the IRS code, it may be exempt from paying federal taxes. If a non-profit organization does not qualify under that section, there are other benefits provided for donors, under section 501(c)(3). These benefits for donors are generally not extended to non-profit mutual benefit corporations formed under the other subsections of the law.
Types of Non-Profit Corporations
A non-profit corporation is a legal entity that has been incorporated under the California state law for purposes other than making profits for its shareholders, owners, or trustees. A nonprofit corporation exists not to earn revenue, but to promote a specific mission. Corporations that are non-profit are often eligible for tax-exempt status, and some may receive tax-deductible contributions. These are the 3 basic subcategories of nonprofit corporations in California:
Forming Public Benefit NonProfit Corps in CA
1. Public Benefit Non-Profit Corporation
Public benefit non-profit corporations are organizations chartered by the California state government primarily (or exclusively) for social, educational, recreational, or charitable purposes. Public benefit non-profit corporations are basically organized to benefit the general public, and not for the interest of their members.
2. Mutual Benefit Non-Profit Corporation
A mutual benefit non-profit corporation, also known as a membership corporation, is a type of non-profit corporation formed under the California state law, solely for the benefit of its individual members. This type of non-profit corporation exists to serve its members in ways other than earning and distributing profit to them. It is not a charity. Therefore, a mutual benefit non-profit corporation is not eligible to apply for a 501(c)(3) non-profit status as a charitable institution.
Mutual Benefit NonProfit Corps in CA
A golf club, for example, is a form of mutual benefit non-profit organization. The club leaders can decide how many members they will have and who is eligible to be members. These details are stipulated in its corporation bylaws. Individuals then pay in order to be a member of the club, and once they are members, they may enjoy the services offered by the club. Their membership may be bought and sold, and if the club dissolves, all properties owned by the club are distributed to its members.
Mutual benefit non-profit corporations still file tax returns and pay income tax, because, unlike public benefit non-profit corporations, they are not formed for a purpose that would benefit the general public. Mutual benefit non-profit corporations are formed for a common gain purpose of their members, and due to this private purpose, this type of corporation pays the same taxes as regular for-profit corporations in California. Nevertheless, a few tax exemptions are still allowed by the IRS, for certain types of mutual benefit nonprofit corporations.
Furthermore, since this is a mutual benefit nonprofit corporation exists only to serve the needs of its members, and not the general public, it is also up to its members to resolve disputes that may arise as to how the corporation is being run.
3. Religious Corporations
Forming Religious NonProfit Corps in CA
Religious corporations are the third of the 3 basic types of nonprofit corporations in California. A religious corporation is formed solely to promote religious purposes. Just like other forms of nonprofit corporations, religious corporations are formed by filing articles of incorporation with the California secretary of state and are regulated by the same government agency. Religious corporations are eligible for many tax exemptions, but unlike other nonprofit corporations, they are subject to less rigorous state and federal filing and reporting requirements.
Religious corporations are allowed to designate a corporation sole and act in his or her capacity. A corporation sole is a person who acts as the official holder of title on the property and other assets of the group.
Incorporating a Business in California
There are many different types of corporations in Orange County, California. Regardless of what type of corporation you intend to form, you need to file the required articles of incorporation with the California secretary of state. Moreover, you need to make sure that every detail in the process of incorporating your business is done right so that you can avoid unnecessary legal problems in the future. It is advisable to have the assistance of a competent incorporation attorney in Orange County, California when you incorporate your business.
Gale and Vallance is a law firm based in Orange County, California that offers many legal services for various businesses. One of the services that they offer is assistance in incorporating a company. Contact Gale and Vallance today at +1 (714) 634-4838.
Andy Gale is a stellar attorney for handling entrepreneurial endeavors!
Posted by Sarah, a business client
I recommend Andrew Gale.
Andy Gale has a great real-world approach to his practice. He is easily reached, friendly, and generous with his time and knowledge. His advice helps create a clear path for attaining your end goal and offers referrals to other professional services if he sees the need. As a small business owner and budding entrepreneur, I highly recommend Andy to anyone who has wanted to make their idea a reality!
Highly recommended!
Andy Gale & the associates at Gale and Vallance were awesome in setting up the CA Professional Nursing Corp for ARF Admin Solutions. They were very responsive and knowledgeable from the start. Highly recommended!
George
01/01/2023
Business legal services
Gale & Vallance provided excellent business legal services. The firm was professional, prompt and prepared. The entire process of starting a new corporation was easy and affordable. They have my recommendation.
Raj
07/10/2022
Highly Recommend!!!
I met Andrew Gale through a mutual friend several years go. I was so impressed with their business practice that I made it a point to get to know the attorney to expand my own business. Several years later following their advice i am successful with my business endeavors and do not make any decisions unless i consult with them. Not only do they manage my corporations but also literally help 30 of my clients who use their services. Rare gems in the industry. Highly recommend Gale and Vallance.
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Incorporation Attorney
1820 W Orangewood Ave Ste 104a, Orange, CA, United States
This firm is excellent, efficient, reliable, with great valuable expertise and very thorough. Their dedication to providing great work and service is apparent in their kind, supportive, consistent great communication. Including providing consistent updates on new laws and regulations. Working with them and having them on my team, I have the confidence and reassurance that all services provided will be of great assistance and help to the continued positive growth and success of my corporation business along with the maintenance of keeping in compliance with and within federal state laws and regulations.
Hannah K
27/01/2024
A trusted colleague/friend of mine actually referred me to Andy's firm and I'm really grateful!
He and his team were incredibly prompt, informative, helpful, and patient (with inevitable questions that came there way by a new business owner like myself). With all the specificities it takes to create a business, this team was awesome in communicating with me and assisting me with navigating not only the needs to get the ball rolling but also how to keep it rolling and with tips to help with bank accounts and accounting packages (if I were to want to take those routes).
They were also very neutral in providing all the options possible and when I requested advisement or pros/cons, they were able to share these promptly and in a way that helped me choose what was best for me.
I'm glad to have worked with them and will continue to work with them
Courtnie L.
07/11/2023
I am so grateful for Andy Gale and his firm's help in getting my S Corp established. He has great expertise and I feel more at ease knowing everything was set up properly with their assistance!
X
Incorporation Attorney
1820 W Orangewood Ave Ste 104a, Orange, CA, United States
Andy and his team were a pleasure to work with! As an LMFT opening a private practice, I was nervous and felt like I didn't know what I was doing. Andy did a great job at explaining everything step by step. I got off of our kick-off call feeling confident and ready to take the next step to opening a practice! I decided to go with a corporation for my private practice. Andy and his team are thorough and answered all my questions throughout the process. I was surprised how quickly everything was taken care of. They also sent me emails along the way, giving me updates. I will be using them for my yearly legal needs. 10/10 recommend!
Julie Eyssallenne
12/11/2023
Andy and his team of professionals are amazing to work with. Not only are they extremely knowledgeable and professional, but they are also very friendly and easy to work with. They will always be my go-to. I appreciate Andy and his team!
Z D
12/01/2024
I could not be more pleased, and frankly impressed with the expertise, attention to detail, follow-up and professionalism of the whole office staff. Andrew Gale Esq is extremely knowledgeable of his craft. His overall approach to corporation creation and management took any doubt or apprehension I had about the process.
Thank you so much for everything and I look forward to a long relationship with your legal practice.
Zouhair Kevin Daif, FNP, Nursing P. C.
