Types of business enterprises
Ask the LDA
July 31, 2021
There are many different ways in which a business is conducted in California. Selecting the most appropriate form of business enterprise for an individual or a group of individuals involves careful consideration of a variety of factors. These factors must be balanced against each other to ensure that the most appropriate form of business is selected. Businesses often act through designated individuals called agents who conduct their operations, and the law of agency governs many legal relationships in business. Agency relationships can arise by express agreement or by a course of conduct between the parties. The acts of agents will bind the businesses they serve if the agent has either actual or apparent authority to act. This guide will help you understand some of the different types of business entities available to you in California when setting up your business.
The most common ways to do business:
In a sole proprietorship, one individual owns all the business assets and is the sole decision maker. The sole proprietor has unlimited personal liability for all business debts. This form of enterprise is the most commonly selected form of business for new enterprises.
In a general partnership, two or more persons co-own all of the business assets and share decision-making, profits and losses. Each general partner shoulders unlimited personal liability for all business debts and obligations. The general partnership is easily formed and managed by mutual agreement.
In general, a joint venture is a general partnership typically formed to undertake a particular business transaction or project rather than one intended to continue indefinitely. Most often, joint ventures are used in real estate matters where two or more persons undertake to develop a specific piece of real property.
Limited Liability Partnership
A limited liability partnership is a type of investment vehicle created so that individuals may invest in a business enterprise with protection from personal liability. A limited liability partnership is managed by one or more general partners, all of whom have unlimited personal liability for business debts and obligations. The limited partners do not manage or control this enterprise and their liability is limited to the amount they invested in the business. Limited partnerships are more complex to form than general partnerships and can only be created by strict compliance with the pertinent state statutes.
Limited Liability Company
The limited liability company structure continues the modern trend of combining the best features of a partnership with those of a corporation. Its primary characteristics are that its owners have limited liability (like shareholders in a corporation) and it is taxed as a partnership, meaning that all income earned by the entity is passed through the company to the owners who pay taxes at whatever rate is applicable to them. An LLC can be created only by complying with pertinent state statutes.
Diana Wade is a Legal Document Assistant. She can be reached at (661) 821-0494 or firstname.lastname@example.org. Diana is not an attorney, she can only provide self-help services at your specific direction. Kern County LDA #185, ex 4/11/23.