Doing business in California needs to consider the business risk, liabilities exposure and the tax consequences. Therefore, using a properly structured business entity is very important for the entrepreneurs. 

In California, a businessman may conduct his/her business in his/her own name by register a fictitious business name (doing business as or "dba") with the county recorder's office in the county where the business is located. By using a fictitious business name, such person will bear all the risks and liabilities directly by himself or herself. The income or loss from the business will also pass through to the individual person as his/her personal income or loss when reporting the tax returns.

A businessman can also form a joint venture with other persons to establish a general partnership or a limited partnership which is a separate legal entity. In a general partnership, each partner is treated as a general partner and thus all the general partners are jointly and severally responsible for all the liabilities or debts incurred by the general partnership. In a limited partnership, however, there will be at least one general partner and only the general partner(s) is/are responsible for the full liabilities and debts incurred by the partnership. The limited partners will only be responsible for the liabilities up to the amount of the capital investment he or she made or is committed to the partnership. The partnership's liabilities are also to pass through directly to each partners. California partnerships should be registered to the California Secretary of State Office.

A California corporation is a separate business entity setting apart from the investors or shareholders. It is the best shield to protect shareholders from the business risk and liabilities incurred by the corporation. Shareholders are only responsible for the portion of the company's liabilities to the extent of his/her shares of the company's stocks. The corporation is a separate tax entity to report its own tax returns. Should the corporation has any after-tax profits to be distributed amount the shareholders, then shareholders should report the actual amount of the money he or she received from the corporation as income. Therefore, the same income will be taxed twice, both at the corporation level and at the shareholder's individual level. 

In 1996, California enacted Limited Liability Corporation law to allow investors to form limited liability companies (LLC) to do business in California. A limited liability company enjoys both the benefit of a limited liability partnership in that the company's taxes may pass-through to each shareholders to avoid double taxation, and the benefit of a corporation in that each shareholder will only be liable to the limited amount of the shares he/she has committed to the company. 

If you want to conduct business in California and you want to learn more about what of business entity is best for you, please contact attorney John J. Ma for help.