As a new business owner, one of your most important decisions is determining what form of ownership will best meet your business needs. Selecting the best structure for your business should be a carefully planned process that is discussed with a qualified professional such as an enrolled agent, certified public accountant, or attorney who specializes in this area. In addition, as your business grows over time, you may want to evaluate if a new form of ownership should be used to achieve better results. Although there are many forms of ownership to choose from, this guide highlights the most common. Show
Sole ProprietorshipThis is the simplest and most common form used when starting a new business. Sole proprietorships are set up to allow individuals to own and operate a business by themselves. A sole proprietor has total control, receives all profits from, and is responsible for taxes and liabilities of the business. Key Features of a Sole Proprietorship:
How to Form a Sole Proprietorship:
Tax Return Filing Guidelines for a Sole Proprietorship:
Estimated Tax
WithholdingIf you pay a California nonresident for services they performed for your business while they were in California, generally, you must withhold 7 percent on all payments that exceed $1,500 in a calendar year. If you backup withhold for the Internal Revenue Service, you must also backup withhold for the Franchise Tax Board on California source income. Backup withholding applies to California residents and nonresidents who do not provide a taxpayer identification number or do not certify exemption from backup withholding when required. For more information about withholding, refer to FTB PUB 1017, Resident and Nonresident Withholding Guidelines. How to End a Sole Proprietorship
General PartnershipA general partnership must have two or more persons engaged in a business for profit. The general partnership is not a separately taxed entity. It is considered a conduit where the profit or loss of the business flows through to the partners. Partnership income is taxed as income to the partners. Losses may be subject to limitations. The partners report their share of the partnership profit or loss on their individual income tax returns even if their share of those profits is not actually distributed to them. The partners decide the entity’s structure, allocation of profits and losses, and the timing and amount of distributions. A formal written partnership agreement is advisable. Partnerships are very flexible and offer a variety of possible ownership and management structures. General partners are jointly and severally liable for all legal and financial obligations of the partnership and for all wrongful acts of any partner acting in the ordinary course of the partnership’s business. Key Features of a General Partnership:
How to Form a General Partnership:
Tax Return Filing Guidelines for a General Partnership:
Estimated Tax:The general partnership has no estimated tax requirements. However, California taxes are pay-as-you-go, so partners may have to make estimated tax payments for their own reporting purposes.
WithholdingGeneral partnerships must withhold 7 percent on distributions of California source income made to domestic nonresident partners when distributions to a particular partner exceed $1,500 for the calendar year. If the general partnership pays a nonresident independent contractor for services performed in California, normally, the general partnership must withhold 7 percent on all payments that exceed $1,500 in a calendar year. If the general partnership is required to backup withhold for the Internal Revenue Service, it must also backup withhold for the Franchise Tax Board on California source income. Backup withholding applies to California residents and nonresidents who do not provide a taxpayer identification number or do not certify exemption from backup withholding when required. For more information about partnership withholding, refer to FTB PUB 1017, Resident and Nonresident Withholding Guidelines. How to End a General Partnership
Limited PartnershipLimited partnerships are formed by two or more people, with at least one person acting as the general partner who has management authority and personal liability, and at least one person in the role of limited partner. All partners - both general and limited - must enter into limited partnership by either oral or written agreement. A formal written partnership agreement is advisable. Limited partnerships are managed and controlled by one or more general partners; general partners have authority to bind the partnership. Limited partners normally do not participate in managing the business. The general partners are liable for partnership obligations to the same extent as partners of general partnerships. Limited partners, however, are generally not liable for the partnership’s obligations; their only risk is their agreed capital contribution, or as otherwise provided in the partnership agreement. However, if limited partners participate in the management of the partnership business, they may lose their protected limited partner status and become liable to the same extent a general partner is. Key Features of a Limited Partnership
How to Form a Limited PartnershipTo form a limited partnership, a Certificate of Limited Partnership (Form LP-1) must be filed with the California Secretary of State. A limited partnership formed in another state must register with the California Secretary of State by filing an Application to Register (Form LP-5) and attaching a completed form of valid certificate of good standing prior to conducting business in the state. The Secretary of State will assign a 12-digit filing number. Keep this filing number for your tax records. Contact the California Secretary of State at 916-657-5448 or go to sos.ca.gov for more information.
Tax Return Filing Guidelines for a Limited Partnership
Estimated TaxThe limited partnership has no estimated tax requirements. However, California taxes are pay-as-you-go, so partners may have to make estimated tax payments for their own reporting purposes.
WithholdingLimited partnerships must withhold 7 percent on distributions of California source income made to domestic nonresident partners when distributions to a particular partner exceed $1,500 for the calendar year. If the limited partnership pays a nonresident independent contractor for services performed in California, generally, the limited partnership must withhold 7 percent on all payments that exceed $1,500 in a calendar year. If the limited partnership is required to backup withhold for the Internal Revenue Service, it must also backup withhold for the Franchise Tax Board on California source income. Backup withholding applies to California residents and nonresidents who do not provide a taxpayer identification number or do not certify exemption from backup withholding when required. For more information about limited partnership withholding, see FTB PUB 1017, Resident and Nonresident Withholding Guidelines. How to End a Limited Partnership
CorporationA corporation is a business entity formed under state civil law that is a separate legal entity owned by shareholders. The California Corporations Code contains general provisions for the formation of many different types of corporations such as personal service corporations, benefit corporations, social purpose corporations, nonprofit corporations, and corporations for various special purposes (such as cooperative corporations). Consult an attorney, specializing in business entity matters, for advice about which type of corporation should be used for your specific business needs. A corporation is managed by or under the direction of a board of directors, which generally determines corporate policy. Officers manage the day-to-day affairs of the corporation. Corporations issue stock to their owners (the shareholders). Shareholders, unless they are officers, do not participate in day-to-day management activities. Management structure can be altered by committees of board members and shareholder agreements. Shareholders generally are not personally liable for obligations of the corporation. Key Features of a Corporation
How to Form a CorporationThe type of corporation you form will affect the administration and operation of the corporation and the type of documents that must be filed with the Secretary of State. The Secretary of State will assign a 7-digit filing number and the date of incorporation. Keep this filing number and date for your tax records. Contact the California Secretary of State at 916-657-5448 or go to sos.ca.gov for more information.
Personal Service CorporationA personal service corporation is a type of corporation whose principal business activity is the performance of personal services and such services are performed by employee-owners. Individuals who perform services in fields such as health, law, engineering, architecture, performing arts, and accounting typically use this classification. A corporation is a personal service corporation if it meets all of the following requirements:
A person is an employee-owner of a personal service corporation if both of the following apply:
Benefit CorporationA benefit corporation is a new type of corporation that voluntarily meets higher standards of corporate purpose, accountability, and transparency. A corporation is a benefit corporation if it meets all of the following requirements:
Social Purpose CorporationA social purpose corporation (SPC) is very similar to a benefit corporation in its standards and requirements. There is a slight difference in its accountability and reporting requirements as an SPC does not have an independent third party standard to assess the company’s social and environmental performance. More information on both benefit corporations and SPCs is available at sos.ca.gov and ftb.ca.gov. Nonprofit CorporationA nonprofit corporation is a corporation that is formed to carry out charitable, educational, religious, literary, scientific, social, or other similar purposes. They are formed pursuant to the Nonprofit Corporation Law in the California Corporations Code. A nonprofit corporation does not pay federal or state income taxes on profits from activities it engages in to carry out its objectives if it is tax-exempt. In order to qualify for this special tax-exempt status, it must apply for it with the Internal Revenue Service and the Franchise Tax Board. More information on nonprofit corporations is available at sos.ca.gov, ftb.ca.gov, and FTB PUB 927, Introduction to Tax-Exempt Status. Tax Return Filing Guidelines for a CorporationCorporations are normally taxed under Internal Revenue Code, Subtitle A, Chapter 1, Subchapter C. Corporations taxed following the Subchapter C rules are more commonly known as "C corporations." They are taxed annually on their earnings and the shareholders pay tax on these earnings when distributed as dividends. The California Revenue and Taxation code requires a C corporation to be subject to the $800 minimum franchise tax if it is incorporated or organized in the state (domestic corporations); qualified or registered to do business in the state (foreign corporations); or doing business in the state without having incorporated, organized, or registered/qualified. Tax Return Filing Guidelines for a C Corporation
Estimated Tax for a C CorporationCalifornia taxes are pay-as-you-go, so C corporations may have to make estimated tax payments for their own reporting purposes.
Tax Return Filing Guidelines for an S CorporationCorporations formed under state civil law (and other civil law business entities classified as a corporation for franchise/income tax purposes) may elect to be taxable as an "S corporation" for franchise and income tax purposes pursuant to the provisions of Internal Revenue Code, Subtitle A, Chapter 1, Subchapter S. A corporation makes the election to be taxable as an S corporation by filing IRS Form 2553, Election by a Small Business Corporation with the IRS. An entity that has a valid S corporation election in effect for federal income tax purposes is treated as an S corporation for California income/franchise tax purposes. An S corporation is not subject to federal corporate income tax, with several exceptions. An S corporation is subject to federal income tax on excess net passive investment income. Also, an S corporation that was previously a C corporation is also subject to federal income tax on built-in gains recognized during the "recognition period" following the S election. Except for these limited cases where the S corporation is subject to federal income tax, the S corporation is a "pass-through entity" similar to an entity taxable as a partnership. Items of income, gain, deduction, and credit pass through to the S corporation’s shareholder(s) on a pro rata ownership basis. These S corporation items are included in the federal income of the shareholder(s), subject to provisions that limit the pass-through of losses and deductions, for purposes of determining a shareholder’s federal income tax. California generally applies the federal income tax rules to S corporations. However, California differs from federal tax law by also imposing a general corporate franchise or income tax on S corporations, but at a tax rate of only 1.5 percent (3.5 percent for financial S corporations). Key tax features of an S corporation include:
An entity taxable as an S corporation that organizes in California, registers in California, does business in California, or receives California source income must file Form 100S, California S Corporation Franchise or Income Tax Return. The return due date is the 15th day of the 3rd month after the close of the taxable year. S corporations are subject to the $800 minimum California franchise tax. The California $800 minimum tax is waived on newly formed or qualified corporations filing an initial return for their first taxable year. The California $800 minimum tax is also waived if the corporation (1) did not do business in California during the taxable year, and (2) the taxable year was 15 days or less. The S corporation must provide each shareholder with a Schedule K-1 (IRS 1120S/FTB 100S) that states the shareholder’s pro rata share of the S corporation’s items of income, deductions, and credits even if no income is actually distributed. Taxpayers that desire to do business as an S corporation should seek professional tax advice. Estimated Tax for an S CorporationCalifornia taxes are pay-as-you-go. Therefore, S corporations and their shareholders may have to make estimated tax payments for their own separate reporting purposes.
How to End a Corporation
Limited Liability CompanyA Limited Liability Company (LLC) is a hybrid entity that may have some advantages over corporations and partnerships depending on your business needs. The LLC’s main advantage over a partnership is that, like the owners (shareholders) of a civil law corporation, the liability of the owners (members) of an LLC is limited to their financial investment. However, like a general partnership, members of an LLC have the right to participate in management of the LLC, unless the LLC’s articles of organization and operating agreement provide that managers will manage the LLC. Key Features of an LLC
How to Form an LLCA California LLC is formed by filing articles of organization with the California Secretary of State prior to conducting business. A foreign (out-of-state or out-of country) LLC that conducts business in California is subject to the California tax filing requirements. A foreign LLC should check with their state of origin for entity requirements. The LLC members must enter into a verbal or written operating agreement. A formal, written agreement is advisable. The LLC does not file the operating agreement with the Secretary of State but maintains it at the office where the LLC’s records are kept. An LLC may be managed by managers who are not members, if provided for in the articles of the organization. However, if the LLC is managed by managers, they alone have authority to bind the LLC; members and directors have no authority in these matters. Otherwise, the LLC is managed by its members. In this case, every member is an agent of the LLC and has the power to bind the LLC and the right to vote on merger or dissolution. Members of the LLC have the same degree of limited liability as a shareholder of a corporation. The Secretary of State will assign a 12-digit filing number and the date of organization. Keep this filing number and date for your tax records. Contact the California Secretary of State at 916-657-5448 or go to sos.ca.gov for more information.
Tax Return Filing Guidelines for an LLCFor income tax purposes, California treats the LLC and its owners, in the same manner the LLC is treated for federal tax purposes. An LLC with a single member is classified as a sole proprietorship, while an LLC with more than one member is classified as a partnership, unless the LLC chooses to be classified as a corporation for income tax purposes. To be taxed as a corporation, the LLC files an election on a federal Form 8832, Entity Classification Election with the Internal Revenue Service. A California LLC which has members who are not residents of California must file FTB 3832, Limited Liability Company Nonresident Members’ Consent with California Form 568, Limited Liability Return of Income. FTB 3832 is signed by the nonresident individuals and foreign entity members to show their consent to California’s jurisdiction to tax their distributive share of income attributable to California sources. The LLC must pay the tax for every nonresident member that did not sign FTB 3832. Single Member LLCAlthough California tax law requires an LLC to have the same tax classification for both state and federal tax purposes, filing requirements differ. For federal tax purposes, there is no separate reporting requirement for the disregarded single member LLC (SMLLC). Reporting the activities of the disregarded SMLLC on the single-member’s federal income tax return is sufficient. However, for California tax purposes, disregarded SMLLCs that are organized or doing business in California, or are registered with the California Secretary of State are required to:
The disregarded SMLLC is not required to issue a Schedule K-1 to a single-member. The disregarded SMLLC’s tax return, Form 568, is due by the 15th day of the 4th month after the close of the tax year. If the disregarded SMLLC files its tax return under the automatic six-month extension, then the due date is the 15th day of the 10th month after the close of the tax year. The disregarded SMLLC will use the same tax year as its single-member. Generally, individuals adopt a calendar year as their tax year, so the due date for the disregarded SMLLC is often April 15 and the extended due date is October 15. The due date for the $800 annual tax is the same as the original due date for the LLC tax return, not the extended due date. For many disregarded SMLLCs this means the $800 annual tax is due April 15. FTB 3537, Payment for Automatic Extension for LLCs is used to pay the disregarded SMLLC’s tax and fee by the original due date of the disregarded SMLLC’s tax return. If the disregarded SMLLC’s only member is a nonresident who has not signed the Single Member LLC Information and Consent on Side 3 of the Form 568, then the disregarded SMLLC is required to complete Schedule T, located on Side 4 of the Form 568 and pay the tax on behalf of its single owner. Payment is due by the original due date of the disregarded SMLLC’s tax return. Use FTB 3537 to make this payment. The LLC fee is based on the LLC’s total income from all sources derived from or attributable to California. It is determined as follows:
The LLC fee is generally considered an ordinary and necessary expense paid or incurred in carrying on the LLC’s trade or business. The fee is deductible on the LLC’s Form 568, Schedule B, on the Other Deductions line. The estimated LLC fee is due by the 15th day of the 6th month of the taxable year. The due date for the estimated LLC fee is often June 15. Use FTB 3536, Estimated Fee for LLCs, to make the estimated LLC fee payment. The person who owns a disregarded SMLLC that operates a trade or business may be subject to the tax on net earnings from self-employment in the same manner as a sole proprietorship and responsible to make quarterly estimated tax payments. For more information, refer to IRS Publication 3402, Taxation of Limited Liability Companies, and California Form 540-ES, Instructions for Estimated Taxes for Individuals for more information. Estimated Tax for an SMLLC
Withholding for an SMLLCIf the SMLLC pays a California nonresident for services they performed for the business while they were in California, generally, the SMLLC must withhold 7 percent on all payments that exceed $1,500 in a calendar year. If you backup withhold for the Internal Revenue Service, you must also backup withhold for the Franchise Tax Board on California source income. Backup withholding applies to California residents and nonresidents who do not provide a taxpayer identification number or do not certify exemption from backup withholding when required. For more information about withholding, refer to FTB PUB 1017, Resident and Nonresident Withholding Guidelines. LLC Classified as PartnershipKnown as the "default rule," Treasury Regulation Section 301.77013(f)(2), provides that an LLC with at least two members is classified as a partnership for federal tax purposes. If an LLC with two or more members chooses the default rule of partnership classification for federal purposes, it must follow the federal partners and partnerships rules found in Internal Revenue Code (IRC) Subchapter K (IRC Sections 701-777), to which California conforms through Revenue and Taxation Code Section 17851. The partnership rules give the multiple-member LLC a significant amount of flexibility to vary their respective shares of the members’ income. The multiple-member LLC will also be in a position to make the tax elections at the entity level, rather than the member level. Such elections may include selecting a tax year, adopting accounting and depreciation methods, and to amortize organizational costs. For more information, refer to IRS Publication 541, Partnerships. The multiple-member LLC will file as a partnership for federal tax purposes (unless it makes an affirmative election to be classified as a corporation for federal tax purposes) using IRS Form 1065, U.S. Return of Partnership Income. However, for California tax purposes the Form 568, Limited Liability Return of Income, not the California Form 565, Partnership Return of Income is filed by a multiple-member LLC organized or doing business in California. The Form 568 is also filed by the LLC classified as a partnership when it has California source income or is registered with the California Secretary of State. The $800 annual tax and LLC fee, as detailed in the SMLLC section above, are also imposed on the multiple-member LLC’s total income from all sources derived from or attributable to California when the partnership federal tax classification is used by the LLC. The LLC fee is based on the LLC’s total income from all sources derived from or attributable to California. It is determined as follows:
The LLC fee is generally considered an ordinary and necessary expense paid or incurred in carrying on the LLC’s trade or business. The fee is deductible on the LLC’s Form 568, Schedule B, on the Other Deductions line. The estimated LLC fee is due by the 15th day of the 6th month of the taxable year. The due date for the estimated LLC fee is often June 15. Use FTB 3536, Estimated Fee for LLCs to make the estimated LLC fee payment. In addition to California Form 568, the multiple-member LLC which is classified as a partnership for federal tax purposes will report the distributions to its members using the appropriate Schedule Ks:
Estimated Tax for an LLC Classified as a PartnershipThe multiple-member LLC classified as a partnership has no estimated tax requirements. However, California taxes are pay-as-you-go, so partners may have to make estimated tax payments for their own reporting purposes.
Withholding for an LLC Classified as a PartnershipGeneral partnerships must withhold 7 percent on distributions of California source income made to domestic nonresident members when distributions to a particular partner exceed $1,500 for the calendar year. If the multiple-member LLC classified as a partnership pays a nonresident independent contractor for services performed in California, normally, the general partnership must withhold 7 percent on all payments that exceed $1,500 in a calendar year. If the multiple-member LLC classified as a partnership is required to backup withhold for the Internal Revenue Service, it must also backup withhold for the Franchise Tax Board on California source income. Backup withholding applies to California residents and nonresidents who do not provide a taxpayer identification number or do not certify exemption from backup withholding when required. The multiple-member LLC which is classified as a partnership for federal tax purposes may be required to withhold taxes if the partnership distributes California source taxable income to a nonresident member. For more information about withholding, refer to FTB PUB 1017, Resident and Nonresident Withholding Guidelines. LLC Classified as a CorporationAn LLC with either a single member or more than one member can elect to be classified as a corporation rather than be classified as a disregarded entity or partnership under the default rules discussed earlier. Federal Form 8832 is filed to elect classification as a C corporation. Federal Form 2553, Election by a Small Business Corporation, is filed to elect classification as an S corporation. LLCs electing classification as an S corporation are not required to file Form 8832 to elect classification as a corporation before filing Form 2553. By filing Form 2553, an LLC is deemed to have elected classification as a corporation in addition to the S corporation classification. Tax Return Filing Guidelines for an LLC Classified as a C Corporation
Estimated Tax for an LLC Classified as a C CorporationCalifornia taxes are pay-as-you-go, so LLCs classified as C corporations may have to make estimated tax payments for their own reporting purposes.
Tax Return Filing Guidelines for an LLC Classified as an S CorporationLLCs formed under state civil law may elect to be taxed under the rules of Internal Revenue Code, Subtitle A, Chapter 1, Subchapter S. Corporations taxed following the Subchapter S rules are more commonly known as "S corporations." An entity that has elected to be taxable as an S corporation for federal tax purposes is also treated as an S corporation for California tax purposes. An LLC classified as an S corporation generally offers liability protection to its owners (shareholders) and is a conduit where the profits or losses of the S corporation flow through to the shareholder(s) even if they are not actually distributed. For an LLC created under state law that elects to follow the Subchapter S rules, the members of the LLC are not liable for the losses of the business and creditors may only look to the LLC and its business assets for payment. Other key features of an LLC classified as an S corporation include:
An LLC classified as an S corporation that organizes in California, registers in California, conducts business in California, or receives California source income must file California Form 100S, California S Corporation Franchise or Income Tax Return. The return due date is the 15th day of the 3rd month after the close of the taxable year. An LLC classified as an S corporation is taxed on its net income at a rate of 1.5 percent for California purposes. LLCs classified as S corporations are not subject to income tax for federal income tax purposes. LLCs formed under civil law that elect to follow S corporation rules are subject to the annual $800 minimum franchise tax to California. The California $800 minimum tax is waived on newly formed or qualified LLCs filing an initial return for their first taxable year. The LLC classified as an S corporation must provide each shareholder with a Schedule K-1 (100S) that states the shareholder’s pro rata share of the S corporation’s items of income, deductions, and credits even if they are not actually distributed. Estimated Tax for an LLC Classified as an S CorporationCalifornia taxes are pay-as-you-go, so LLCs classified as S corporations and their members may have to make estimated tax payments for their own reporting purposes.
How to End an LLC
Appendix 1: Doing Business AsAny person or entity carrying on a trade or business for profit in California who decides to use a name which does not include the owner’s last name, portray the nature of the business, or is not the entity’s legal name, must file a Fictitious Business Name (FBN) statement. This process is also known as registering a "Doing Business As" (DBA) or "Trade Name." The business registers with the Registrar-Recorder/County Clerk’s office in the county where the business will be primarily located. If there is no place of business in California, registration is made with the Clerk of Sacramento County. The filing of a fictitious business name certificate is designed to make available to the public the identities of persons doing business under the fictitious name. Registration is necessary when:
Example:If Michael Rocco owns a sole proprietorship, and his business name is Michael Rocco Painting, he won’t need a fictitious business name because people will know who the owner of the company is and the type of business. If he wanted to go by either Michael and Sons Painting or House Painting Fast, he would need to file a fictitious business name because the business name suggests additional owners and doesn’t include his last name. Likewise, the name Michael Rocco Painting would not be acceptable for a DBA registered to sell real estate. If Michael Rocco instead owned either an LLC or a corporation, and wanted to open up additional businesses under the LLC or corporation, he would need a fictitious business name statement for any business name other than the entity’s legal name. The filing of a FBN, articles of incorporation, or certificate of qualification establishes a rebuttable presumption that the first registrant has the exclusive right to use as a trade name, so long as the name is actually being used. It is important to select a business name that is not already in use, does not closely resemble an existing business name, or misleads the public. Many cities and counties offer a fictitious business name search on their individual websites. The California Governor’s Office of Business and Economic Development conveniently provides links to most county and city websites through its CalGold website, calgold.ca.gov. Although a business does not file a fictitious name statement with the Secretary of State, the Secretary of State is a good resource for determining if a business name is already in use. The fee to file a fictitious business name statement varies depending on the city or county where it is filed. The business owner should direct inquiries to the Registrar-Recorder/County Clerk’s office in the county where the business will be primarily located. The filing is valid for five years or until the facts in the statement change, whichever occurs first. The business owner usually files a fictitious business name statement within 40 days of starting the business, or before the statement on file expires. Along with the original, the county or city may require several copies of the statement for filing. The clerk or recorder will certify and return all copies to the registrant, keeping the original. Within 30 days after filing a fictitious business name statement, the registrant must publish the statement in a local newspaper of general circulation near the principal place of business. The notice must appear once a week for four successive weeks. Within 30 days of the last published date, the registrant must file an affidavit of publication with the county or city office. We recommend that you check with the Registrar-Recorder/County Clerk’s Office to determine if there is a specific list of approved publications in which to meet this requirement. A business owner should also check with the respective publication when they place the advertisement of the required notice to determine if the publisher will file an affidavit with Registrar-Recorder/County Clerk’s Office upon completion. Appendix 2: Commonly Used TermsBusiness License: Business licenses are permits issued by government agencies that allow individuals or companies to conduct business within the government’s geographical jurisdiction. It is the authorization to start a business issued by the local government. Disregarded Entity: A disregarded entity is a business entity that is not recognized as a separate entity for tax purposes. For example, the default rule under the federal "check-the-box" treasury regulations, is that a single member LLC (SMLLC) is considered to be a disregarded entity for tax purposes. Dissolving, Canceling, or Surrendering an Entity: Business entities doing or transacting business in California or registered with the California Secretary of State (SOS) can dissolve, surrender, or cancel when they cease operations in California and need to terminate their legal existence here. Refer to FTB PUB 1038, Guide to Dissolve, Surrender or Cancel a California Business Entity, for more information. Dividend: A dividend is a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves). Doing Business: A taxpayer is doing or transacting business in California if it actively engages in any transaction for the purpose of financial or pecuniary gain or profit in California. For taxable years beginning on or after January 1, 2011, a taxpayer is also doing business in California if any of the following conditions are satisfied:
More information on this term can be found at ftb.ca.gov/forms and FTB PUB 1060, Guide for Corporations Starting Business in California. Fictitious Business Name (FBN): Also known as "Doing Business As" or DBA, a fictitious business name is a business name that is different from your personal name, the names of your partners, or the officially registered name of your LLC or corporation. Refer to Appendix 1 for a more detailed explanation. Foreign Business Entity: A Business Entity that was formed outside of the state of California or outside of the United States is a foreign business entity. A foreign business entity can qualify/register to transact business in California by filing the applicable form with the California Secretary of State. Informational Return: An informational return is a tax document or statement that contains information required to be reported to federal and state tax authorities. For example, Federal Forms 1098, and 1099 and California Partnership Return 565 are informational returns. Pass-through Entity: Pass-through entities are not subject to income tax. Rather, the owners are directly taxed individually on the income, taking into account their share of the profits and losses. Examples include: entities classified as partnerships and entities taxable as S corporations. (However, California also imposes a modified corporate franchise/income tax on S corporations.) Stock: Stock is a share of a company held by an individual or group. Corporations raise capital by issuing stock and entitle the stock owners (shareholders) to partial ownership of the corporation. Appendix 3: Quick Reference Chart - Franchise Tax Board Forms of OwnershipThe chart below is intended to be for quick reference purposes. The estimated tax dates for C Corporations and S Corporations are based on calendar year operations.
Go to ftb.ca.gov for information about less common forms of ownership such as a Limited Liability Partnership (LLP), Limited Liability Limited Partnership (LLLP), and Series Limited Liability Company (Series LLC). More helpful information for California businesses including DBAs is also available at the California Business Portal at businessportal.ca.gov and GO-Biz at business.ca.gov. For Additional Information: Websiteftb.ca.gov800-852-5711For General Information Websitetaxes.ca.govWhich type of business has a separate legal entity?A corporation is a legal entity that is separate and independent from the people who own or run the corporation, namely shareholders. A corporation has the ability to enter into contracts separate from that of the shareholders, but it also has certain responsibilities such as the payment of taxes.
What are 4 types of business ownership?There are 4 main types of business organization: sole proprietorship, partnership, corporation, and Limited Liability Company, or LLC.
What is a separate business entity?A separate entity is a business that is separate legally and financially from its owner or owners.
What are the 4 types of entities?The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a business structure allowed by state statute.
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