Legal Question in Business Law in California

Re: LLC or S-Corporation

You should check out an article I wrote on this subject.

Here's the address for the article: http://www.legalwarriors.com/llc,_corp,_partner.htm

If she can get merely the corporate or LLC to be solely obligated, that's the way to go. Usually, however, the lender will want a real, live body obligated as well, especially with a new corporation or LLC.

Happy to consult with you/your wife.

J. Caleb Donner

DONNER & DONNER

LEGAL WARRIORS �

325 E. Hillcrest Drive, Suite 242

Thousand Oaks, CA 91360

Tel: 805-494-6557

Fax: 805-494-0990

email: [email protected]

website: www.legalwarriors.com

Re: LLC or S-Corporation

If the business is being conducted in California, form it here. In rare circumstances there may be good reason to incorporate out of state, but for most small businesses out of state incorporation just means double reporting and double taxation.

The choice between an LLC and a corporation that elects "S" taxation is, in most cases, almost a tossup. Certain ventures that borrow heavily and incur large losses in their early years may be better off as LLCs, as a businesses that don't qualify for "S" treatment, e.g. have non-resident alien owners. LLCs have a bit more organizational flexibility at the price of needing more detailed documentation (an operating agreement vs. bylaws, for example), and may pay a somewhat higher franchise tax if they have a significant sales volume. Your tax accountant may be able to provide some input. If in doubt, I would slightly favor the "S" corp. over the LLC.

The best time to borrow from the SBA is (a) when the SBA is fully funded by Congress and not over-committed for the fiscal year, and (b) when you have a compelling story to tell through a well-written business plan showing how you will serve local needs for job creation, providing essential services, etc. You also need to be emotionally prepared to put up collateral such as your house, your first born, etc.

Re: LLC or S-Corporation

I found a typo in my earlier answer. Instead of "as a businesses" I should have typed "as are businesses" in the 2nd sentence of the 2nd paragraph. Sorry.