Legal Question in Business Law in California

Re: LLC or corporation for internet business

LLC's are taxed more like partnerships. Corporations are taxed separately, and then divideds are taxed when paid to stockholders.

I would lean to an LLC, but all factors must be explored.

Re: LLC or corporation for internet business

It really depends upon the level of protection from potential liability for your acts the three of you want, and how the entity will be taxed. You should probably spend the money to meet with an attorney who can explain each form of business, the consequences of using each particular form, and to eventually properly form whatever form of entity you decide to use. In the long run you will probably save a great deal of money if the entity is properly formed and operated.

Re: LLC or corporation for internet business

Either would work, and if properly organized and operated the liability protection afforded would be roughly the same.

Venture capitalists might prefer to deal with a corporation, because their securities are easier to deal with in an eventual public offering, and that form of business organization is more traditional and better understood.

It may be slightly more expensive to form an LLC in the first place, as the documentation is less "off the shelf" and more individualized.

The franchise, etc. tax burden on an LLC may be slightly higher than on a corporation, due to what amounts to a tax on its receipts. However, this is likely to be more than offset by the so-called double taxation of corporate income.

It is possible to convert one form of business entity to another at a future time, e.g corporation to LLC or LLC to corporation, but the process is not always straightforward and simple.

LLCs afford somewhat more flexibility in structure (control, management, etc.).

My guess is that if you presented your entire business plan to a lawyer and an accountant, they would recommend the LLC for now. However, that's only a guess and there must be reasons why corporations continue to be formed in large numbers in California.

Re: LLC or corporation for internet business

Like my colleagues, I can't tell you the best entity for you right now. There are advantages and disadvantages to each.

My strong recommendation is to consult with an attorney and an accountant before doing anything.