Starting a business in California in 2026? Your first major decision is choosing a legal structure. The right choice protects your personal assets, saves you money on taxes, and aligns with your growth plans. The wrong one can create unnecessary costs, legal risks, and roadblocks.
This 3-minute guide breaks down the three main options—LLC, S-Corp, and C-Corp—with a focus on what you need to know for the year ahead.
The 3 Main Choices, Simplified
1. The LLC (Limited Liability Company) – The Flexible Favorite
Think of an LLC as the all-around, user-friendly option. It’s the most popular choice for a reason.
- What it does for YOU: It creates a legal shield between your business and your personal assets (your home, car, savings). If your business is sued or has debt, your personal property is generally safe.
- The Tax Advantage: Profits and losses “pass through” to your personal tax return by default, so you avoid “double taxation.” You also have the flexibility to be taxed as a sole proprietor, partnership, or even an S-Corp if you file an election.
- 2026 Consideration: Perfect for solopreneurs, freelancers, consultants, and small teams who value simplicity and control. It’s also the go-to for businesses holding digital assets or operating with remote teams across states.
- The California Catch: You must pay an $800 annual franchise tax (minimum), even if you make no money.
2. The S-Corporation (S-Corp) – The Tax-Saver
An S-Corp isn’t a separate entity you form; it’s a special tax election that an existing LLC or corporation can choose.
- What it does for YOU: It can save you thousands in self-employment taxes. Here’s how: as an owner, you pay yourself a “reasonable salary” (subject to payroll taxes). Any profit beyond that can be taken as a “distribution,” which is not subject to the 15.3% self-employment tax.
- The Trade-Off: More paperwork. You must run payroll, hold formal meetings, and keep detailed records. There are also ownership restrictions (e.g., no foreign investors, max 100 shareholders).
- 2026 Consideration: Ideal if your business is already consistently profitable. The tax savings must outweigh the added administrative cost and complexity. Great for established e-commerce stores, agencies, and local service businesses.
3. The C-Corporation (C-Corp) – The Growth Machine
This is the structure for businesses built to scale big, fast, and seek major outside investment.
- What it does for YOU: It makes your business incredibly attractive to venture capital firms and angel investors. It allows you to issue different types of stock and has no restrictions on the number or type of shareholders (foreign investors, other companies, etc.).
- The Big Drawback: Double Taxation. The corporation itself pays taxes on its profits (at a 21% federal rate + 8.84% in California). Then, when those profits are paid to you as dividends, you pay taxes on them again on your personal return.
- 2026 Consideration: The clear choice if your goal is to pursue significant venture capital funding, go public, or build a large enterprise with a complex cap table. This is the standard for tech, biotech, and venture-backed startups.
Quick 2026 Decision Guide
Ask yourself these questions:
- “I want to keep things simple and protect my personal assets.”
→ Choose an LLC. It’s the best starting point for most. - “My business is profitable, and I want to keep more of what I earn by minimizing taxes.”
→ Start as an LLC, then explore the S-Corp election with your CPA. - “I am seeking venture capital or building a company to eventually sell or go public.”
→ You likely need a C-Corp.
Your Next Step for 2026
This choice is foundational. While this guide provides the map, your specific financial picture and goals are unique.
Before you file anything:
- Talk to a California CPA about the tax implications for your expected income.
- Consult with a business attorney (like us at Leeran S Barzilai Law) to ensure your personal assets are fully protected and your structure supports your long-term vision.
Getting this right from day one sets you up for a smoother, more successful 2026 and beyond.
For more information
👉 https://lbatlaw.com/
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IMPORTANT DISCLAIMERS:
AI-Generated Content Disclosure: The core legal information is based on California law, but the presentation and structure were AI-enhanced for educational clarity.
Legal Disclaimer: This video is for educational and informational purposes only. It does not constitute legal advice, nor does it create an attorney-client relationship. You should consult directly with a qualified California attorney licensed in your state for advice on your specific legal situation. Laws and procedures change, and your individual circumstances require personalized counsel.
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