Legal Question in Business Law in California

Re: How to check on a company's information?

You can get very basic information about any corporation that was incorporated in California or that has registered to do business here from the California Secretary of State. Go to www.ss.ca.gov and then select the "Business Portal" and then "Corporate Name Search." If you enter one or two words, you'll get a listing of all corporations with those words in its name. Then choose one, and you'll get its date of incorporation, corporation number, current status, and its address, and the name and address of its registered agent for service of process. Upon written application and payment of a fee, you can get a copy of the corporation's most recent "Statement of Information" which will show officer and director names and addresses and a few other items of possible interest.

Verifying that a corporation has filed for and is entitled to "S" tax-filing status is less simple; the corporation should be able to show you tax returns showing that it files on IRS Form 1120-S, or a letter from the IRS showing that its application for "S" tax treatment has been accepted.

Before you invest in any business, be it a corporation, LLC, partnership or proprietorship, you need to perform what is called "due diligence," which really means independently verifying all the supposed facts that make it a good investment, and likely to achieve your investment goals for you. This is a much broader task than verifying a corporation's existence. That would be like, in deciding to buy a used car, placing emphasis on it having a license plate on each end, with the rear one having a current sticker. There is much more to investigate.

A preliminary question is whether you are making a loan (and hence there is a promise to repay) or an equity investment, where you become a part owner. The personal liability issues of each are rather different....if you are a creditor, you are far less likely to be held liable for any business problems that may arise than if you are a part owner.

Owners of incorporated businesses and LLCs do enjoy a fairly high degree of protection from the business' debts, suits and judgments, but it is not perfect protection in all instances.