Entity Formation

Choose the Right Business Structure for Your Company

From cost, to flexibility, to organization and protection from liability, choosing the correct type of entity can make or break your company. By taking into consideration all of the different factors that are used to determine the correct type of entity, you can  are used in determining the correct type of entity.


Business associations between one or more individuals or entities are typically categorized as partnerships. Depending on the situation, partnerships may either be implied or expressly made. Implied partnerships exist even though there are no written or recorded agreement.


Limited Liability Company

A relatively new type of business entity, limited liability companies (or LLCs) combine the flexibility of a partnership with the protection from liability that a corporation has to offer. The flexible nature of a limited liability company allows for customized business structures to help fit almost any internal arrangement.


A widely used business entity type is the corporation. Companies formed as a corporation are organized as rigidly structured entities which must adhere to the various corporate formality requirements which are set out by state law and the corporate bylaws.


Formerly the only way to commercially sell cannabis in California was not for profit.  Businesses which are formed as not-for-profit or non-profit are those which operate for for the benefit of a particular purpose or group of people. The strict structure and explicit prohibitions require these companies to work in a particular manner.

Protect. Organize. Grow

An important part of any business venture is to make sure that you are protected from personal liability and have the necessary safeguards to facilitate your company’s growth and expansion without encountering any limitations that are based on your company’s entity type.

With California having now opened up commercial cannabis sales to entities besides not for profit businesses, the options of which type of entity to form for your business are now as plentiful as most other industries.

Whether you’re starting a business that directly works with cannabis, or you are contemplating opening a company that is on the ancillary side of the marijuana industry, the first step towards success is ensuring the proper formation of your business entity.


Partnerships can range from being one of the most simple types of business entities, to highly complex and intricate business association. A unique feature of a partnership is that you may actually be engaged in a partnership without even knowing it.

Partnerships are common entity structures for professional entities such as; law firms, accounting firms, engineering businesses and land surveyors.

General Partnership
  • Can be expressly made agreement or implied through actions
  • No protection from personal liability
  • No filing fees or annual fees
  • Pass-through taxation
Limited Partnership
  • Limited partners not engaged in managing business
  • Personal liability for general partners
  • Formed through California Secretary of State
  • Annual franchise tax
Limited Liability Partnership
  • Provides all partners with protection from liability
  • All partners participate in managing the business
  • Filed with the California Secretary of State
  • Annual franchise tax
Limited Liability Limited Partnership
  • Provides limited liability to limited partners
  • General partners exposed to personal liability
  • Filed with the California Secretary of State
  • Annual franchise tax

Limited Liability Company

Limited liability companies (or “LLCs”) are a relatively new type of business entity that  combines the flexibility of a partnership with the protection of a corporation. LLCs are a popular choice due to the ease of administering and maintaining the company.

In California, LLCs are not required to follow many corporate formalities that are common place with corporations. Some of these formalities can be seen as unnecessary interference and waste of resources, particularly with smaller business entities with only a few members. Some of the LLC’s advantages include:
– No Annual Meetings
– No Requirements to Record Minutes
– No Directors or Officers Required

Another advantage that LLC’s have is the flexibility in being able to choose the manner in which they are taxed:


  • Only available for single-member LLCs
  • The entity is not taxed, only the tax payer behind the entity is
  • The entity is “disregarded” for tax purposes
  • Available to LLCs that have 2 or more members
  • Pass-through taxation so only the members are taxed
  • Allows each member to be separately responsible for their taxes
  • Has no more than 100 members,
  • Has shareholders who are all individuals (exceptions apply) and non-aliens
  • Has only one class of stock
  • Dual taxation whereby the entity is taxed as a separate entity
  • After entity is taxed, members are then liable for taxes as well
  • Advantageous to reduce individual taxpayer liability


Corporations are one of the most widely used and recognized entity types in the world. Although different jurisdictions may treat certain intricacies of a corporation differently, the basic structure and organization of corporations are for the most part the same from jurisdiction to jurisdiction.

Corporations have predictable structures and are bound by particular organizational requirements, which make it an ideal entity type for outside investors. The organizational structure is also fitting for larger businesses which have intricate internal hierarchies.

Examples of some of the corporate formalities that are by default required to be adhered to include:

  • Director(s) and Officer(s) to be nominated/elected
  • Shareholder Meetings
  • Corporate Minutes Recording

Already Formed as a Non-Profit?

If your business is already operating and your company was formed as a non-profit corporation or unincorporated association, learn how California Weed Law can help you convert your business to for-profit when the time comes


In the State of California, non-profit companies are typically either formed as an Unincorporated Nonprofit Association or a Nonprofit Corporation. The underlying purpose of either option is that the company is intended to operate for the benefit of a certain purpose.

Non-profits may be eligible to be exempt from paying taxes, however this exemption must be met on each taxable level:

Tax Exempt

  • Federal
  • State

California provides for a variety of different types of not for profit entity types, with each one having particular nuances and requirements:

Entity Forms

  • Nonprofit Mutual Benefit
  • Nonprofit Public Benefit
  • Nonprofit Religious