Legal Question in Business Law in California

Re: Choosing a legal entity

No. An "LLP" is a limited liability partnership. LLPs have limited partners whose personal liability is limited, but they must also have at least one general partner, whose liability is not limited.

Perhaps you meant to suggest an LLC, or limited liability company. The LLC form of business organization is a relatively recent creation of statute. In the simplest terms, it resembles a corporation from a personal-liability standpoint and a partnership from an income taxation standpoint. In these regards, it is similar to a corporation that has made an election to be taxed as an "S corporation," but there are important differences even between LLCs and S corporations. One area of difference is in state franchise taxes. Another is subtle differences in federal income taxation.

Generally, LLCs work well for companies that are capital-intensive and borrow heavily, such as farming and real estate ventures, while S corporations may be better for high-turnover, low-margin businesses like grocery stores.

The choice of a business-orgainzation form should be made in consultation with your lawyer and your accountant or tax advisor. Also, unless the deal between you and your co-owner is already well established, you might each want separate representation in putting together a founder's agreement.

Finally, don't overlook insurance as another ingredient in your overall liability-shelter arrangements.

Re: Choosing a legal entity

The short answer is, it depends.

Choosing the appropriate legal entity for your business is an important decision, and a variety of factors relating to personal liability protection, tax treatment and practical logistics must be considered. A corporation or LLC may be viable options as well.

The decision is probably important enough to warrant a small investment of attorney time. At the very least, you should try to educate yourself. One good source is the Nolo Press series of books relating to starting and running a business in California.

Re: Choosing a legal entity

Only certain types of businesses can form LLPs. You are more likely thinking of an LLC. You should consult with both an attorney and your tax advisor to decide on whether to select an LLC or corporate form of business. However, as a new entity, most of your vendors and landlords will likely want personal guarantees so the entity will not provide much protection initially.

Re: Choosing a legal entity

You should choose between LLC and Corporation. You should also have a partnership agreement between you and your partner laying out rights and obligations, how the company will be funded, how the profit will be split, etc. You can start with a simple Memorandum of Understanding (MOU)...and later on you can expand that to a full-blown partnership agreement. Infact do the MOU before incorporation...

Re: Choosing a legal entity

Hopefuly you are aware by now that a LLP or limited liability partnership will not protect all partners from personal liability.

The LLC may be an ideal form of business organization for you or even a S Corp.

We can likely assist you with forming your business organization; yet, without more information regarding the facts of your specific objectives, it is difficult to evaluate your best course of action thoroughly. If you are in the northern or southern California areas, please contact us or email us at www.unalaw.com if we can be of further assistance.

Re: Choosing a legal entity

I have an article exactly on this point.

http://www.donnerlaw.com/llc,_corp,_partner.htm

Go to this link and check it out. Call me if you have any questions regarding your specific issues. I would be happy to speak with you.

J. Caleb Donner

DONNER & DONNER

LEGAL WARRRIORS (R)

325 E. Hillcrest Drive, Suite 242

Thousand Oaks, CA 91360

Tel: 805-494-6557

Fax: 805-494-0990

email: [email protected]

website: www.donnerlaw.com