Sole owner, LLC or worker cooperative: which business setup is right for you

This page helps you choose a business setup. The filing steps for an LLC are on How to set up a one person LLC in California. This is general information, not legal or tax advice. Talk to a tax professional before you file.

Does my immigration status limit which setup I can choose?

Mostly no. Forming a business is handled by the state, and California's forms ask about the business, not your status. You can be a sole owner or own an LLC with an ITIN instead of a Social Security number. The IRS lets the owner of a business use an SSN or an ITIN to get a free business number (EIN). See Can I start a business without a Social Security number?

There is one setup that is closed to many immigrants. An S corporation is a tax choice some owners make to save on taxes. The IRS says an S corporation may not have a "nonresident alien" shareholder. That is a tax term, not an immigration term, so whether it applies to you depends on your tax situation. Ask a tax professional before you pick it.

Running your own business is different from working for a boss. Federal hiring rules make employers check their employees' papers. Those rules do not cover a true independent contractor or business owner. Read How to earn money working for yourself to learn where that line is.

What is a sole owner business?

A sole owner business (the law calls it a sole proprietorship) is you, doing business. There is no state filing to create it. You and the business are the same for the law and for taxes.

What it costs:

• No state fee to start and no yearly state business tax
• A city business license where your city requires one. In San Mateo County, cities issue business licenses. In unincorporated areas, the County Treasurer's Office does.
• A Fictitious Business Name Statement if your business name does not include your last name. You file it with the county and must advertise the name in a local newspaper within 45 days. County staff can help you find a qualified paper.

How taxes work: you report your profit on your own tax return and pay self employment tax of 15.3% for Social Security and Medicare. You can pay it with an ITIN. See How to pay taxes on self employment income with an ITIN.

The risk: if the business owes money or someone sues it, they can go after what you own, like your car or savings.

Good fit if: you clean houses, tutor, design, cook, sell crafts or do other work with low risk, and you want to start this week with little cost.

What does an LLC do for me?

A limited liability company (LLC) is a business you register with the state. The owners are called members. California's tax agency says an LLC protects its members against personal liabilities. In plain words, business debts and lawsuits usually stay with the business and do not reach your personal savings. That shield is not perfect. Keep business money separate, sign contracts in the LLC's name, and ask a business lawyer what can break it.

What it costs in California:

• $70 to file Articles of Organization (Form LLC-1)
• $20 for a Statement of Information, due within 90 days of filing and every two years after that. Missing it brings a $250 penalty.
• $800 a year in state tax, every year, even if the LLC earns nothing, until you cancel it
• An extra yearly LLC fee only once California income reaches $250,000 or more. It starts at $900.

The free first year that some people remember is over. It applied only to tax years from 2021 through 2023.

How taxes work: for federal income tax, a one person LLC is treated as part of you unless you choose otherwise. You report its profit on your own return, like a sole owner, and pay the same self employment tax. An LLC also files California Form 568 each year.

Federal ownership report: you may have heard that new companies must report their owners to FinCEN, a part of the U.S. Treasury. FinCEN's final rule, effective August 14, 2026, says companies created in the United States no longer have to file these reports. Websites that charge you to file one are selling something you do not need.

Good fit if: your work carries real risk (driving clients, handling their homes or property, food, events, contracts with big clients), you have partners, or a client asks you to be a company.

What is a worker cooperative?

A worker cooperative is a business owned and run by the people who work in it. Members usually share profits and make big decisions together, often one vote per member.

California has a law for this. Under California Corporations Code section 12253.5, a worker cooperative is a cooperative corporation with a class of worker members whose part in the business is the work they do. At least 51% of the workers must be worker members or candidates for membership. The law also says that choosing this form does not by itself make the workers employees. The law took effect January 1, 2016.

A group can also run as a co op inside an LLC, writing the co op rules into its operating agreement. The University of California lists "a limited liability company as a worker cooperative" as one income option for undocumented graduates.

What to know first:

• A co op is a group decision. You need clear written rules about money, votes, new members and what happens when someone leaves.
• Costs depend on the form you pick. If it is an LLC, the LLC costs above apply to the company.
• A cooperative corporation pays the $800 minimum tax too. State law makes every corporation formed in California pay it. The only co op exemption is for some farm co ops. A new corporation does not pay the minimum tax for its first tax year (Revenue and Taxation Code 23153). Ask a tax professional to confirm for your group.
• Ask the state for the co op filing fee. On October 21, 2026, the Secretary of State's corporation forms page lists other articles ($100 for a regular corporation, $30 for a nonprofit) but no cooperative form. Call the Secretary of State at (916) 653-6814 to ask.
• Whether a member without work authorization can be paid for labor through a co op is a federal immigration question. California's law does not answer it. Talk to an immigration attorney before you set this up. Free help is on Free legal help in the Bay Area.

Good fit if: you already work alongside others, like house cleaners, caterers, gardeners or child care workers, and you want to own the business together instead of working for one boss.

How do the three compare?

How do I decide?

Answer these questions honestly:

1. Can I afford $800 every year? If your business will earn a few thousand dollars, the LLC tax may eat much of your profit. Many people start as a sole owner and switch later.
2. How likely am I to be sued? Think about injuries, damaged property or a broken contract. More risk points toward an LLC, plus insurance. An LLC does not replace insurance.
3. Am I alone or with others? Partners need a written agreement whatever you choose. A group that wants equal say may want a co op.
4. Does a client or a license require a company? Some clients only sign contracts with companies. Ask before you file.
5. Do I need help from a lender? Bay Area lenders that serve immigrants are listed on Where to get a low cost loan.

You can change later. A sole owner can form an LLC when the business grows.

What mistakes should I avoid?

• Paying a website to file for you when the state fee is $70 and the IRS EIN is free
• Forgetting the $800 because you did not earn anything. The tax is still due, and penalties grow.
• Forming an LLC and then not using it. If you change your mind within a year, you can file a short form cancellation (Form LLC-4/8). California's tax agency says the LLC then does not owe the $800 for its first year.
• Mixing money. Open a separate bank account for the business. See Open a bank account with an ITIN or consular ID.
• Calling workers contractors when they are really employees. If you hire, the employer rules apply to you. See Am I an employee or an independent contractor?

Who can help?

Contact them to confirm hours, languages and openings. Being listed here is not a referral or a promise of service.

• Free business coaching: see Free small business coaching in the Bay Area.
• Immigrants Rising: a nonprofit that offers free workshops and one on one support to start or grow a business in California, whatever your status. Making Money (Immigrants Rising)
• Free tax help: see Where to get free tax help if you file with an ITIN.
• Franchise Tax Board, LLC questions: 800-852-5711, weekdays 8 a.m. to 5 p.m. Limited liability company (FTB)
• Immigration legal help: see Free legal help in the Bay Area.

Is there a worksheet I can print?

Whatever you choose, you are building something of your own. Start small, keep good records, and take the next step when you are ready.