Which is the better business entity: sole proprietorship or corporation?
Entrepreneurship is an exciting journey. It’s a dream put to action on your own terms. The possibilities feel endless — and they are.
That being said, a lot goes into starting your business. Entrepreneurs early on should think about what kind of business entity they want their company to be. There are several options in most states, including California. Each have various attributes designed to fit different types of businesses. A sole proprietorship works well for some small businesses, while a corporation typically offers the most benefits for tech startups. Here’s a look at both.
A sole proprietorship allows an individual to own and operate a business. The California Secretary of State’s Office does not require sole proprietors to file with its office, which makes sole proprietorship a fast and inexpensive option for some small businesses. A person who runs an online store selling crafts or works as a freelance writer, for instance, might consider becoming a sole proprietorship. A sole proprietor has complete control of their business and receives all profits. But that also means the owner is solely responsible for all taxes, debts, and liabilities encountered along the way.
A corporation, meanwhile, has more formation costs but it provides benefits that aren’t given to sole proprietorships.
A corporation is required to file Articles of Incorporation with the Secretary of State’s Office and pay filing fees before it can become a registered corporation. The benefits of incorporating typically outweigh any headaches especially because There are considerable tax benefits for corporations, as well as liability protections not offered to sole proprietorships.
A corporation is a particularly desirable option for technology startups, in particular If you are looking for outside investors. A corporation limits its owners from personal liability and taxes are levied on both the corporation and shareholders. The sale of stocks and bonds can generate additional capital.
Each business and business entity is unique. To understand the different options and which direction will be best for your situation, you need to consult with an experienced corporate attorney. Michael Leonard, Esq., of San Diego Corporate Law, named “Best of the Bar” by the San Diego Business Journal in 2016, has the expertise to guide you through everything from forming your business, to creating
buy-sell agreements, to executing contracts and anything in between. To schedule a consultation to discuss any business-related matter, please contact Mr. Leonard by visiting San Diego Corporate Law or by telephone at (858) 483-9200.