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Choosing the Right Entity for your Business (Spanish)

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Choosing the Right Entity for Your Business

With the widespread administration of the COVID-19 vaccine in some parts of the country, many are becoming cautiously optimistic about a return to some semblance of normalcy. Aspiring entrepreneurs are eager to take advantage of the post-pandemic economic growth and use that momentum to help turn their unique and innovative ideas into successful business ventures. In this article, we introduce a number of legal entities available to an entrepreneur, and break those entities down into their most essential features. We hope that the information contained herein will be useful for entrepreneurs when selecting the most optimal business entity to start their adventure in California.

This article follows a graphical format that is designed to create a more user-friendly experience to help spot the similarities and differences between the various forms of entity, including the stakeholders involved, protection against personal liability (i.e., liability limited), the tax regime, and what type of business is the most appropriate for each entity. The information contained in this article is presented as a service to the community and is not intended to constitute legal advice.


A Corporation can be a “C” Corporation or an “S” Corporation “C” Corporation

Concerned parties

  • Shareholders (owners of the capital of the corporation; and they can be human beings or other
  • Board of Directors (elected by shareholders to make important decisions on
    behalf of the corporation).
  • Officers (appointed by the board of directors to make
    daily operational decisions).

Limited Liability

  • Shareholders are generally not responsible for the company’s losses and debts.
  • In a situation where the court “lifts the corporate veil”, shareholders could become liable.

Double taxation

  • A “C” corporation is first taxed on its profits and then shareholders pay taxes on any dividends they receive from those profits. Shareholders who are employees also pay income tax.
  • The annual franchise tax in California is $800.00.

Best Suited For: Single or multi-owner businesses seeking both
limited liability and established funding procedures.

“S” Corporation (An “S” corporation is not a separate legal entity, but rather a status under federal tax laws. Once an “S” is elected, the “S” corporation will have the following distinctive features s .

Concerned parties 

  • An “S” corporation cannot have more than 100 shareholders and cannot be publicly traded.
  • Shareholders must be human beings and must be US citizens.

Transferable Taxes

  • Income and losses are passed on to shareholders, and shareholders either pay taxes on the income earned or directly report losses on their tax returns.

Best Suited For: Small businesses or family members looking for tax-transferable and limited liability.

Limited Liability Company

A Limited Liability Company (“LLC”) can be “Member Managed” or “Manager Managed”

Concerned parties

  • Members (owners of the capital of an LLC; and can be human beings or other entities).
    • Profits and losses may be distributed among members differently from the members’ ownership percentage in the LLC.
    • The Member Managed LLC is managed by all members or by a Managing Member.
    • Any member can legally bind the entire LLC to a contract or
      business transaction, unless the other party knows that the member does not have
      the authority to do so.
  • Managers (only if the LLC is Managed by Managers).
    • The Sole Administrator or a Council of Managers (similar to directors in a corporation).
  • Officers (appointed by members (if Managed by Members) or Managers (if Managed by Managers).

Limited Liability

  • Members of an LLC are generally responsible for the company’s losses and debts.
  • In a situation where a court “pierces the corporate veil”, members could become liable.
  • Members may also become liable if they expressly agree to be personally liable.

Transferable Taxes

  • All of the LLC’s income and losses are passed on to the members and they must either pay taxes on the income earned or directly report the losses on their tax returns.
  • An LLC can choose to be taxed as a corporation and subject to double taxation (if the members did not want to be taxed directly).
  • The franchise tax in California is $800.00.
  • Members are considered self-employed and must pay FICA taxes (that is, Social Security and Medicare taxes).

Best Suited For: Single or multi-owner businesses looking for tax-transferable, limited liability, and flexible control over the company.


A Partnership can be a General Partnership or a Limited Partnership Partnership General Partnership

Concerned parties

  • In general, a partnership is an arrangement in which two or more persons (ie partners) combine resources in a business with the intent to make a profit.
  • Officials (appointed by the partners).

No Limitation of Liability

  • Partners are personally liable for the debts of the entire partnership, including debts incurred by actions of other partners.
    • Each partner can be responsible for the entire amount of debt of the entire partnership.
    • Any partner can bind the entire company to a contract or a commercial operation, unless the counterparty knows that said partner does not have the powers to do so.

Transferable Taxes

  • All income and losses of the partnership are passed on to the partners and the partners must either pay taxes on the income earned or report the losses directly on their tax returns.

Best Suited For: Businesses with multiple owners, all of whom will be running the business, who are seeking tax carryover, and for whom potential product and/or service obligations are minimal.

Limited society

Concerned parties

  • Two or more partners consisting of at least one General Partner and one Limited Partner.
  • The General Partner is responsible for day-to-day operations.
  • Limited Partners contribute financially to the business but have limited control over
  • Officers (appointed by the General Partner).

Sin Limitación de Responsabilidad para Socios Generales; Responsabilidad Limitada para Socios Limitados

  • Los Socios Generales son personalmente responsables de las deudas de toda la sociedad, incluyendo las deudas incurridas por acciones de otros socios.
  • Los Socios Limitados son personalmente responsables sólo en la medida de la inversión del Socio Limitado.

Impuestos Trasladables

  • Igual que en la Sociedad General
  • El impuesto de franquicia en California es de $800.00

La más adecuada para: Empresas con dos o más propietarios, al menos uno de los cuales busca una
inversión pasiva sin participación en la administración diaria.

Sociedad Unipersonal (Sole Proprietorship)

Partes Interesadas

  • El propietario. Sin distinción legal entre el propietario de la empresa y la entidad comercial.

No Limitation of Liability

  • The owner is personally liable for the debts of the entire business.

Transferable Taxes

  • The owner only reports all business income or loss on his individual tax return.

Best Suited For: Sole proprietorships that do not have tax concerns and for whom
potential product and/or service liabilities are minimal and insurance is

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