Business structures

This is not a substitute for legal or professional advice.

Be sure to carefully compare the different types of structures before making your decision as there are advantages and disadvantages to each type, depending on your situation. The Business Entity Comparison Table can show you a simple comparison, or you can find more detailed information from the US Small Business Administration (SBA). You should also consider consulting an attorney for legal and tax advice.

Once you choose your business structure, you may register your business with the City. However, if you chose a corporation, or limited liability company (LLC) as your business structure you must register or incorporate with the CA Secretary of State first. 

NOTE: Legal business entities (Corporations and LLC's) are required to pay an annual minimum tax of $800 to the California Franchise Tax Board no matter how much income they bring in.

A sole proprietorship is the most basic type of business to establish. There's no legal distinction between the owner and the business itself. This means the owner is personally liable for all the business's debts and obligations.

A general partnership is a business structure where two or more people share ownership and management responsibilities. The details of this agreement should be written out formally to define the roles of each partner, including what would happen if the business fails.

Limited Partnerships have both limited and general partners. The general partners own and operate the business, while the limited partners invest in the business but have limited liability and thus limited input in its management. An LLP is a partnership where all partners have limited liability for the business's debts and obligations. This means that a partner's personal assets are generally protected from the business's liabilities, even if another partner makes a mistake or the business fails. These business types are not usually used for retail or service businesses. 

An LLC is a hybrid between a corporation and a partnership. Similar to a corporation, business owners in an LLC are not responsible for the debt of the company – in other words, they have limited liability. However, unlike a corporation, the business itself does not file a separate tax return. Instead, the profits and losses are passed through to the members, who report them on their individual tax returns. It's important to note that LLCs can choose to be taxed as corporations, in which case they would file a separate tax return. 

A corporation is a legal entity that is separate and distinct from its owners. It is created under state law by filing articles of incorporation with the state. Once formed, a corporation can own property, enter into contracts, sue and be sued, and hire employees, just like an individual.

An S-Corporation is a type of corporation that has chosen to be taxed as a pass-through entity. This means that the corporation's profits and losses are passed through to its shareholders, who report them on their individual tax returns. S corporations are limited to 100 shareholders, all of whom must be U.S. citizens or resident aliens and can only have one class of stock.

A B-Corporation, also known as a B Corp, is a for-profit company that meets high standards of verified social and environmental performance, public transparency, and legal accountability. It is not an entity type.

Business Entity Comparison Table – SF Office of Small Business

This table provides an at-a-glance reference to how the most common business entity types — sole proprietorship, general partnership, C corporation, S corporation, and LLC — compare in a number of key characteristics.

Legal Services for Entrepreneurs

The Lawyers’ Committee for Civil Rights provides legal services for entrepreneurs to low-income individuals (including women and people of color) who want to start or develop for-profit businesses, and certain for-profit businesses committed to community economic development.

Franchise Tax Board

Find information about California state business taxes.

IRS - Internal Revenue Service

Find information about federal business taxes.