Starting and Organizing a Business FAQs
Choosing a Business Structure
1. What are the common ways to organize a business?
Common choices include a sole proprietorship, partnership, limited liability company (LLC), or corporation. Certain organizations may use a nonprofit corporation or another specialized structure. A DBA is a business-name filing; an S election concerns tax treatment.
2. Can LDA Document Services tell me which structure is best?
We can provide general information about the documents we prepare. We cannot recommend the best legal structure, ownership arrangement, or tax election for your circumstances. Those decisions should be made with an attorney or qualified tax professional.
3. What factors should I discuss with my advisers before choosing?
Topics include ownership, personal liability, expected income, taxes, management, employees, professional licensing, financing, and plans to add investors or sell the business.
4. What is a sole proprietorship?
A sole proprietorship is a business owned by one individual without a separate corporation or LLC. The owner generally is personally responsible for business obligations.
5. Can a sole proprietor use a business name?
Yes. A fictitious business name statement may be required when operating under a name that meets California’s filing criteria. The filing does not create a separate legal entity.
6. What is a general partnership?
A general partnership involves two or more people conducting a business as co-owners. It can arise without a formal state formation filing, and partners can face personal liability. Obtain legal advice about the arrangement and responsibilities.
7. Should business partners have a written agreement?
A written agreement can document contributions, management, profit allocation, departures, disputes, and other terms. You must select the substantive terms; an attorney can advise whether they adequately address your situation.
8. Is a DBA, LLC, or corporation the same as a business license?
No. Name registration, entity formation, and business licenses serve different purposes. A business may need several registrations or permits.
DBAs and Fictitious Business Names
9. What is a DBA?
DBA means “doing business as.” In California, it commonly refers to a fictitious business name used instead of the owner’s or entity’s qualifying legal name.
10. Does a DBA create an LLC or corporation?
No. It registers a business name associated with its owner. It does not create a separate entity or establish liability protection.
11. Can an LLC or corporation have a DBA?
Yes. An entity may operate under a different business name, subject to applicable fictitious-name requirements.
12. Where is a California fictitious business name filed?
It generally is filed with the county clerk where the principal place of business is located. Special rules apply when the principal business location is outside California.
13. Is newspaper publication required?
A new filing generally requires publication in a qualifying newspaper. In San Diego County, publication generally must begin within 45 days after filing and run once weekly for four consecutive weeks. Confirm the requirements and any renewal exception with the county. sdarcc.gov
14. Does a fictitious business name expire?
Generally, a California statement expires five years after filing. Certain changes can cause it to expire earlier or require a new filing.
15. What changes may require another filing?
Changes involving ownership, business location, or other required information may require action. Contact us with the existing statement and proposed change so we can confirm the requested preparation scope.
16. Does filing a DBA give me exclusive rights to the name?
Do not assume it does. A county filing is not a trademark clearance or a guarantee that you can use the name without infringing someone else’s rights.
17. Is a DBA the same as a trademark?
No. A DBA identifies the name under which a business operates. Trademark rights concern the identification of goods or services and require separate consideration.
18. Can more than one business name appear on a statement?
Depending on county requirements and the ownership arrangement, multiple names may be permitted. Filing and publication charges can vary.
19. Can I close or stop using a DBA?
Yes. An abandonment filing and publication may be required. Closing a DBA does not automatically close an LLC, corporation, tax account, or business license.
20. Does your DBA service include publication?
The written package description will identify whether publication coordination is included. County charges, newspaper costs, and other third-party expenses should be separately itemized.
Limited Liability Companies
21. What is an LLC?
A limited liability company is a state-law business entity with owners called members. Its legal structure and its tax classification are separate matters.
22. Can one person own an LLC?
Yes. This is commonly called a single-member LLC.
23. Can multiple people own an LLC?
Yes. A multi-member LLC can have multiple owners. Ownership percentages, contributions, management, and other terms should be documented.
24. Does an LLC protect me from every business liability?
No. An LLC can limit certain personal liabilities, but it does not eliminate personal guarantees, responsibility for your own wrongdoing, or every other source of liability. Insurance and proper business practices remain important.
25. What are Articles of Organization?
They are the formation document filed to establish a California LLC. Filing them does not complete every licensing, tax, banking, or operational requirement.
26. What is an operating agreement?
It documents the LLC’s internal rules, including ownership and management. It may address contributions, voting, distributions, transfers, and departures.
27. Is an operating agreement filed with the Secretary of State?
Generally, no. It is maintained with the LLC’s records rather than filed as its formation document.
28. What is the difference between member-managed and manager-managed?
In a member-managed LLC, members manage the business. In a manager-managed LLC, designated managers manage it. Your agreement and formation records should reflect the arrangement you select.
29. Can spouses own an LLC together?
Yes, but ownership and tax treatment require consideration. Do not assume that every spouse-owned LLC has the same tax classification.
30. Can an LLC have a business or trust as an owner?
In many circumstances, yes. Restrictions may arise from the business activity, governing documents, or intended tax election. S corporation tax treatment imposes additional ownership restrictions.
31. Can a licensed professional use an ordinary California LLC?
California restricts LLC use for certain professional services. Before formation, confirm the permitted structure with the relevant licensing board and legal adviser.
32. How is an LLC taxed by default?
For federal income-tax purposes, a single-member LLC generally is disregarded as separate from its owner, while a multi-member LLC generally is treated as a partnership. Eligible LLCs can elect a different classification.
33. Does “disregarded entity” mean the LLC does not legally exist?
No. It describes certain tax treatment. The LLC remains a state-law entity and may have separate employment, excise, and state tax obligations.
34. Does a California LLC owe an annual tax?
An LLC taxed under California’s LLC rules generally owes an $800 annual tax, subject to exceptions. The temporary first-year exemption applied to tax years beginning in 2021–2023; it should not be assumed to apply to a new 2026 LLC. FTB.ca.gov
35. Can an LLC owe an additional California fee?
Yes. Under California’s LLC tax rules, an additional fee applies when statutory total California income reaches $250,000. This is not simply a net-profit threshold. Different rules apply when an LLC is taxed as a corporation. FTB.ca.gov
36. What if my LLC earns no money?
No income does not automatically eliminate filing or annual-tax obligations. Discuss the applicable returns and exceptions with your tax professional.
Corporations
37. What is a corporation?
A corporation is a separate legal entity formed under state law. Owners generally are shareholders, directors oversee the corporation, and officers handle designated responsibilities.
38. Can one person own a corporation?
Yes. One person may hold multiple roles where permitted, but corporate records and required actions still need to be maintained.
39. What are Articles of Incorporation?
They are the document filed to establish a corporation. Additional organizational documents and actions usually follow formation.
40. What are bylaws?
Bylaws establish internal governance rules, such as meetings, voting, directors, and officers.
41. What are organizational resolutions?
They document initial actions, such as appointing officers, adopting bylaws, authorizing banking, and approving share issuance.
42. Does filing Articles of Incorporation establish each owner’s shares?
Not by itself. Authorized shares and shares actually issued are different. Share issuance, payment, ownership records, and applicable securities requirements need attention.
43. What is a C corporation?
“C corporation” generally describes a corporation taxed under the usual federal corporate income-tax rules. Eligible entities may elect S corporation treatment.
44. What does corporate “double taxation” mean?
A C corporation may pay tax on its income, and shareholders may also pay tax on dividends. Whether this applies and how it affects your business requires tax advice.
S Corporation Elections
45. What is an S corporation election?
It is an election for qualifying federal tax treatment. It does not replace state-law formation.
46. Is an S corporation a separate California formation choice?
You form a corporation or another eligible entity, then request S tax treatment. Formation and the election are separate steps.
47. Can an LLC elect S corporation taxation?
Yes, if eligible. It generally remains an LLC under state law while receiving corporate tax treatment.
48. What form requests the election?
IRS Form 2553. The election is separate from Articles of Organization or Incorporation.
49. Who can qualify?
Eligibility includes domestic status, permitted owners, no more than 100 shareholders, one class of stock, and other requirements. Certain entities are ineligible.
50. Can a nonresident alien be an S corporation shareholder?
Generally, no. Immigration status and tax residency are different concepts; eligibility should be reviewed by a tax professional.
51. Can a trust own an S corporation interest?
Certain trusts qualify, sometimes with additional elections. Not every trust is eligible.
52. Must the owners consent?
Yes. Required shareholder consents must accompany the election. Internal Revenue Service
53. When is Form 2553 due?
Generally, no later than two months and 15 days after the beginning of the tax year for which it is to take effect, or during the preceding tax year. New-entity timing requires particular attention.
54. Can I make a late election?
Late-election relief may be available if the requirements are met. It is not automatic and should be reviewed by a tax professional.
55. Does an LLC always need Form 8832 before Form 2553?
No. A qualifying, timely Form 2553 election can also establish corporate tax classification without a separate Form 8832. Have your tax adviser confirm the filings needed.
56. Does sending the form guarantee acceptance?
No. Retain filing evidence and obtain IRS confirmation. Follow up if confirmation is not received; do not treat preparation alone as acceptance. Internal Revenue Service
57. Does an S election guarantee tax savings?
No. Results depend on income, compensation, expenses, state taxes, administrative costs, and other circumstances. We do not calculate or promise tax savings.
58. Must an owner working for an S corporation receive wages?
A shareholder-officer performing services generally must receive reasonable compensation when payments are made for those services. Compensation and payroll should be established with a qualified adviser.
59. Can I take all payments as distributions instead of wages?
Calling payments “distributions” does not eliminate compensation requirements. The IRS can reclassify payments as wages when appropriate.
60. Who determines a reasonable salary?
It depends on duties, experience, time, comparable compensation, and other facts. Your tax professional should evaluate it; our document preparation does not establish a salary.
61. Are payroll and tax returns included with election preparation?
No, unless expressly identified in a separate service agreement. The election does not set up payroll or prepare ongoing returns. Internal Revenue Service
62. Does S status eliminate California business taxes?
No. Federal S treatment does not eliminate California taxes or filing obligations.
63. Can I change owners or distribution rights after electing S status?
Changes can affect eligibility. Obtain advice before admitting owners, transferring interests, or changing economic rights.
64. Can I revoke S status later?
Revocation or termination can have significant tax consequences and restrictions on reelection. Consult your tax adviser before proceeding.
Names, EINs, Addresses, and Banking
65. Does state approval of my entity name establish trademark rights?
No. Entity-name approval does not establish trademark clearance or guarantee that your use will not infringe existing rights.
66. What is an EIN?
An Employer Identification Number is a federal tax identifier. It is not a business license, formation document, or S election.
67. Does the IRS charge for an EIN?
The IRS provides EINs without a government application fee. A preparer may charge separately for assistance.
68. When should I request an EIN for a new LLC or corporation?
Generally, complete state formation first so the EIN application uses the established entity’s correct legal name and details.
69. Can I reuse my sole proprietorship’s EIN for a new entity?
Do not assume so. IRS rules determine whether a new EIN is required when ownership or structure changes.
70. What is an agent for service of process?
The agent receives specified legal notices for the entity. The appointment does not mean the agent manages the business.
71. Can I be my own agent?
An individual may serve if California’s requirements are satisfied. Consider availability and the public disclosure of the required address.
72. Can I use a P.O. box or virtual mailbox for every address?
No. Address requirements vary by filing, agency, and bank. A mailing address may not satisfy physical-address or service-of-process requirements.
73. Is my business filing information public?
Much of it is. Review the required fields before filing and avoid including sensitive information that is not requested.
74. Should my LLC or corporation have a separate bank account?
Separate accounts help distinguish business and personal transactions. Ask the bank what formation, tax-identification, and authorization documents it requires.
Licenses, Reporting, and Operations
75. Does formation mean I can immediately conduct any activity?
No. Local licenses, zoning approval, professional licensing, permits, and industry-specific requirements may still apply.
76. Do I need a seller’s permit?
Businesses making sales subject to California sales tax generally need one. Confirm your requirements with the California Department of Tax and Fee Administration.
77. What if I operate from home or only online?
Local licensing, zoning, tax, and permit requirements may still apply. An online business is not automatically exempt.
78. What is a Statement of Information?
It updates specified entity details with the California Secretary of State. It is separate from a tax return.
79. When are Statements of Information due?
California LLCs and corporations generally have an initial filing due within 90 days. Subsequent frequency depends on entity type—generally biennial for LLCs and annual for stock corporations. Confirm your entity’s filing window.
80. What ongoing records should I maintain?
Maintain formation documents, governing agreements, ownership records, approvals, tax records, licenses, and important contracts. Corporate and LLC requirements differ.
81. What if I hire employees?
Payroll registration, withholding, employment documents, workers’ compensation, and other obligations may apply. Formation does not complete employer setup.
82. Does calling someone an independent contractor make them one?
No. Classification depends on applicable legal tests and facts, not just the contract’s label. Obtain appropriate advice.
83. Do U.S.-created companies currently have to file federal BOI reports?
Under current FinCEN guidance, entities created in the United States are exempt from federal beneficial ownership information reporting under the Corporate Transparency Act. Certain foreign-country entities registered in the United States remain subject to reporting. This does not eliminate other ownership disclosures. FinCEN.gov
84. What if I receive a notice demanding payment for a business filing?
Confirm whether it comes from a government agency or a private solicitation. Compare the notice with your actual filing obligations before paying.
Existing Businesses, Other States, and Closure
85. Can I move from a sole proprietorship or DBA to an LLC?
Yes, but forming the LLC does not automatically transfer contracts, accounts, permits, assets, or the business name registration. Those steps require separate attention.
86. Does a new entity erase my old business debts?
No. Formation does not automatically release existing obligations or personal guarantees.
87. Can I add a partner or change ownership later?
Often, yes, but changes may require approvals, revised agreements, ownership documents, and tax review. They are not automatically included in initial formation.
88. Should I form in Nevada or Delaware while operating in California?
That choice requires legal and tax advice. Out-of-state formation does not automatically avoid California registration, tax, or operating requirements.
89. What does “foreign entity” mean?
For state registration, it generally means an entity formed in another jurisdiction, including another U.S. state. FinCEN’s current federal reporting rules use a narrower foreign-country distinction.
90. Can an existing LLC or corporation be converted to another structure?
Sometimes. Conversion, merger, or a new formation and asset transfer may be involved. Legal and tax consequences should be reviewed before document preparation.
91. Can I close a business by simply stopping operations?
Stopping operations does not necessarily end filing and tax obligations. Formal dissolution or cancellation, final returns, and closure of other registrations may be necessary. sos.ca.gov
Nonprofit Businesses
92. Is forming a nonprofit the same as obtaining tax exemption?
No. State formation and tax exemption are separate matters. A nonprofit is not automatically entitled to represent donations as tax-deductible.
93. What nonprofit structures are available in California?
Common categories include public benefit, mutual benefit, and religious corporations. The client must select the structure with appropriate advice.
94. Does every nonprofit apply for 501(c)(3)?
No. The organization’s purposes and activities determine which exemption category, if any, may apply.
95. Is Form 1023-EZ available to every small organization?
No. The complete IRS eligibility worksheet must be evaluated; revenue and assets alone do not determine eligibility.
96. Can a nonprofit pay its founder or employees?
Compensation may be permitted, but private-benefit restrictions, reasonableness, conflicts, and approval procedures require attention. A nonprofit does not distribute profits to owners like an ordinary for-profit business.
Working With LDA Document Services
97. What business documents can you help prepare?
Depending on the agreed scope, services may include fictitious business name statements, formation documents, Statements of Information, operating agreements, bylaws, organizational resolutions, and requested election documents.
98. Can you help with an S election?
Preparation assistance may be available after you and your qualified tax adviser have selected the election, confirmed eligibility, and provided the necessary instructions. We do not recommend the election or provide tax planning.
99. What information should I have ready?
Provide the selected structure, proposed names, business activity, addresses, owners, ownership percentages, management choices, agent details, and relevant adviser instructions. Existing businesses should also provide their current records.
100. How does the process work?
You identify the service requested, complete the agreement and intake, and supply your instructions. We prepare the agreed documents for review and coordinate submission when filing assistance is included.
101. What is included in my package?
Only the documents and services expressly listed in the package and written agreement. Formation does not automatically include a DBA, EIN, S election, licensing, payroll, tax returns, or ongoing compliance.
102. Are government and third-party fees included?
Your quote will identify included charges and separately payable expenses. Do not assume filing, publication, registered-agent, licensing, certification, or expedited-processing costs are included.
103. Are the trust package’s free revisions and mailing terms available for business services?
Business-service revision and delivery terms are governed by the applicable written agreement. The trust package’s 12-month revision policy does not automatically apply.
104. How long does formation take?
Preparation depends on complete information and client approval. Agency processing is separate and can vary. Expedited service, where available, does not guarantee acceptance.
105. Do you guarantee approval, liability protection, or tax savings?
No. Government agencies make acceptance decisions. Legal protection and tax results depend on applicable law, the documents, operations, and individual circumstances.
106. What if I need advice during preparation?
Pause and consult an attorney or qualified tax professional. We can then confirm whether your updated instructions remain within the agreed preparation scope.
107. Is LDA Document Services a law firm or accounting firm?
No. We provide document preparation according to your instructions and the written service agreement. We do not provide legal representation, entity-selection advice, or tax advice.