Legal Question in Business Law in California

It is not possible to advise you, based simply on the information you provide here. I suggest you consult with a business lawyer in your area to discuss the possibilities. Regardless of what for or entity you choose, moreover, you need to have a clear and detailed agreement among the three of you as to your rights and responsibilities.

Best of luck to you.

There is only one proper general answer, 'corporation' for liability protection of the principles and investors. There are several versions of corporations available, depending upon your tax and income issues, to be discussed and determined with the aid of your accountant and financial advisers. Is serious about being in business you are going to need legal and financial advice from the beginning. If serious about doing so, feel free to contact me.

Multi-owner small businesses can be organized as corporations, LLCs, or partnerships. Generally, partnership is the poorest choice because of unlimited personal liability of all partners for business debts, but it is the 'default choice' because that's what the business will be deemed to be unless the owners form and set up another type of entitiy, such as a corporation or LLC, both of which involve formation costs and various taxes and fees.

Forming a business with three owners, each with a widely different dollar investment and different commitment to management and operations is an art. There are successful business co-promotions, and there are disasters.....and everything in between.

Your chances of success will be improved significantly by each and every learning step you take before jumping into a choice. Discussion with one or more lawyers with significant small-business consulting/representation experience is one recommended step. Getting an MBA is also desirable, but obviously not practical; an alternative is to acquire two or more of those self-help business/law paperback books with titles like "How to Form and Operate Your ..... (Corporation, LLC, Business, etc.) . Nolo Press is one noted publisher; there are several others. Be sure the ones you study are based on California law (assuming that's where your business would be).

One basic factor to note is that business investment can come in as either debt or equity. Debt investment is generally characterized as interest-bearing, non-voting and requiring repayment, whereas equity investors are owners, not creditors, and vote on business affairs, hope for dividends, but don't get repaid. Business investment can also be structured to have both debt and equity characteristics.

Any decision on structuring the investments must also take into account the objectives and desires of the three investors. How detached will the non-working investor/owners be? Maybe not working in the business every day, but surely someone who puts $200K into a new venture is going to stay fully tuned in, and may well want to participate in a bunch of minor matters that could become an annoyance (and also may be helpful).

Mr. Whipple gives you a very good answer. I just write to disagree with him about using a self-help book. That might be fine for a very small business with just one or two owners of roughly equal investment and work, but when you are talking an initial capitalization of nearly $300K and most of that coming from an investor, not a participant, you need thorough in-person evaluation and advice from a local business attorney.