Legal Question in Business Law in California

Re: Forming Partnership in California

There is a lot implied in your question that I won't address for sake of brevity, but some important points: (1) I think you're really asking about the possibility of forming an LLC (Limited Liability Company). Certain professionals (i.e. only attorneys, accountants and architects in CA) cannot form an LLC and must for an LLP (limited liability partnership) instead. If you form an LLC, the advantage is that the business has liability protection similar to a corporation, but pass-through tax treatment like a partnership. (2) Regarding personal liability, an LLC generally shields the individual from personal liability, but there may be exceptions relating to personal services. As with any business, an owner can be held liable for their own negligent actions, which is particularly true with personal services. Also, you should consider the fact that the entity must pay certain minimum taxes. (3) As for the buy-in price, you can usually get a rough idea of a fair price by looking at cash flow and how long it will take you to recoup your purchase price. There may be industry variation, but a really (really) rough general idea would be to aim for pay back in two years. You need to do your homework for this type of business. (4) Be really careful! I have counseled numerous clients after the fact that feel they were defrauded because they did not sufficiently research the true "net" cash flow the business would provide or failed to uncover other material facts until after the deal was closed. Don't take someone's word on what the business is making - check out the books! If you are investing a significant sum of money (to you), this is not a time for a DIY contract. An accountant should be consulted regarding entity choice and an attorney should look over the documents.