Before deciding, explore these questions:

1. How much money do I need? Where will it come from?
2. What business skills are needed that I cannot provide?
3. How much control do I want over the operation?
4. How will the business be taxed?
5. To what extent will I be personally liable for debts?
6. What will happen to the business if I am incapacitated?

A Sole Proprietor has sole responsibility and control of the business; the sole proprietor must procure all capital necessary to operate the business and is personally liable for all claims against the business. A sole proprietorship is easy to initiate and is the least-regulated form of business. Under this structure, business income is taxed as personal income.

A Partnership is the pooling of the capital and skills of two or more people as co-owners to conduct business. A partnership is not a separate legal entity; partnership liability extends to the personal assets of the general partners. Each partner is taxed on his or her share of the partnership income at the personal tax rate. It is recommended that all partnerships be formalized by having an attorney draw up a partnership agreement.

A Limited Partnership permits investors to become partners without assuming unlimited liability. Limited partners usually risk only as much as their original investment, and exercise limited control over the activities of the partnership. These partnerships must file a Certificate of Limited Partnership for $70.00 with the:

Secretary of State in Sacramento Limited Partnership Division	(916) 653-3365

A Corporation exists as a separate entity apart from its owners, the shareholders. It makes contracts, assumes liability, pays taxes, and is legal person.

A corporation can attract capital by selling stock in the company to select investors or to the pubic. The stockholders are not liable for claims against the corporation beyond their original investment. Incorporation can be both costly and complicated. The owners of a business must file Articles of Incorporation with the:

Secretary Of State	(619) 525-4113
1350 Front Street, Room 2060, San Diego, CA 92101

Initial fees are an $800.00 or $600.00 deposit (depending on individual circumstances) for the first year's franchise tax, and $115.00 for filing and service fees. Franchise taxes are due annually after the Articles are filed.

Newly formed corporations are required to pay an $800.00 pre-payment tax to the Franchise Tax Board beginning in their second year. Corporations in their first year are only required to pay their regular income tax fees. In addition, corporations are also required to pay $115.00 for filing and services fees each year to the Secretary of State.

You must then file an annual statement with the Secretary of State about the officers of the corporation. The filing fee is approximately $10.00; failure to file results in a sizable fine.