Entity Setup Glossary
Plain-English definitions for the accounting and financial terms you'll come across as a Nguyen & Company, CPA client.
Corporate Veil
The legal separation between you and your business. It protects your personal assets from business debts and lawsuits. Mixing personal and business finances can pierce the veil and eliminate that protection.
EIN (Employer Identification Number)
Your business's federal tax ID, issued by the IRS at no cost. Required to open a business bank account, hire employees, or pay contractors.
Operating Agreement
The internal document governing how your LLC is run. Covers ownership percentages, decision-making authority, profit distribution, and what happens if a member leaves or the business dissolves.
Articles of Organization
The document you file with the California Secretary of State to officially create an LLC. Once approved, your LLC legally exists. Fee is $70.
Statement of Information: A filing due every two years for LLCs and annually for corporations, confirming your current business address, registered agent, and member information. Filed at sos.ca.gov for a $20 fee.
Registered Agent
A person or company designated to receive official legal and government documents on behalf of your business. Must have a California address. You can serve as your own registered agent.
Franchise Tax
California's annual minimum tax of $800 owed by LLCs, corporations, and S-Corps for the right to do business in the state. Owed regardless of whether the business made any money.
LLC Fee
A California-specific annual fee owed by LLCs with gross receipts over $250,000, charged on top of the $800 franchise tax. Ranges from $900 to $11,790 based on gross revenue.
Reasonable Salary
In an S-Corp, the IRS requires working owners to pay themselves a salary comparable to what the role would pay on the open market. Paying yourself too little to maximize distributions triggers IRS scrutiny.
Form 2553
The IRS form you file to elect S-Corp tax treatment for an LLC or corporation. Must be filed by March 15 for the current tax year, or within 75 days of forming a new entity.
DBA (Doing Business As): A registered trade name that lets you operate under a name different from your legal business name. Sole proprietors who use any name other than their own must register a DBA with their county.
Self-Employment Tax
The 15.3% tax on net business profit paid by sole proprietors and single-member LLC owners. Covers both the employee and employer share of Social Security (12.4%) and Medicare (2.9%).
Schedule C
The IRS form attached to your personal tax return (Form 1040) where sole proprietors and single-member LLC owners report business income and expenses.
Secretary of State
The California state office where LLCs file Articles of Organization and corporations file Articles of Incorporation. All filings are done at sos.ca.gov.
Single-Member LLC
An LLC with one owner. Taxed as a disregarded entity by default. Provides personal liability protection that a sole proprietorship does not.
Multi-Member LLC
An LLC with two or more owners. Taxed as a partnership by default, with each member's share of profit and loss flowing to their personal return on a Schedule K-1.
Sole Proprietorship: The default structure if you run a business without formally registering. No liability protection. All business income and expenses flow to Schedule C of your personal return.
S-Corp (S-Corporation)
A federal tax election, not a separate entity type. Lets you split business income between a W-2 salary (subject to payroll taxes) and profit distributions (not subject to payroll taxes), reducing your overall tax bill.
C-Corp (C-Corporation)
A separate legal entity taxed at the corporate rate. Profits are taxed once at the corporate level and again when distributed to shareholders as dividends. Most common for venture-backed businesses planning to raise outside capital.