Legal Question in Business Law in California

Re: No Assets?

I suppose the answer depends upon (among other things) just how risky the proposed business is, and to what extent you will obtain insurance against those risks. Just because you don't have assets to protect now doesn't mean you'll always be penniless, and a judgment against you for, let's say, a products-liability claim could remain in effect for years.

Another thing you should consider is that you may find yourself inadvertently in a partnership with your father and his wife; partnerships arise when people get into business together with some kind of profit-and-loss sharing understandings between them, whether or not there is a conscious intent to form a partnership or a written (or even oral) partnership contract.

There are zillions of happy and successful sole proprietors, and probably hundreds of thousands of happy and successful gneral partnerships. No doubt most of the happy ones have used insurance to protect themselves against business liability and casualty of various kinds. The happy partners probably have carefully-drafted written partnership agreements.

So, go sole proprietor or partnership, but keep in mind public liability as well as routine trade payables and operating losses as potential personal liability problems.

As to your last question, obtaining business loans from any "professional" source such as a bank, the SBA, a venture capitalist, etc. will require some combination of collateral, proven earnings capacity (cash flow) and/or a credit rating showing willingness to pay on time. Most startups, especially by younger businessmen who don't have equity in real estate to hock, don't qualify and must rely upon loans from parents, friends or business associates (including, occasionally, prospective customers).

Re: No Assets?

What leaps out at me from your question is that you are a college student, yet you have 4 credit cards, and you are only making payments on 2 of them. You need to read "Young, Fabulous and Broke" by Suze Orman. Google for "Suze Orman" and I am sure you will find numerous columns of hers on the topic of living within your means. And get your business startup advice from a lawyer. Call one and make an appointment. Pay cash.

Re: No Assets?

For credit purposes, the type of entity will not matter as you will have to personally guaranty company credit/debt.

However, for liability purposes, you are crazy to operate as a sole proprietorship, especially since you will be working with others. Crazy! You should form a corporation or LLC.

If you wish to learn more, or would like us to form an entity for you, give us a call. Don't do it yourself. Failure to properly establish and run an entity may result in the loss of limited liability.