Legal Question in Business Law in California

Both a corporation and an LLC can shield your personal assets. If that is your only issue, then you can flip a coin.

There are, however, real differences between a corporation and and LLC. Some of the issues are discussed on the website of the California Secretary of State, at www.sos.ca.gov. Check out the "business entities" menu.

You will want to consider issues such as (1) will the owners be shareholders or members; (2) the tax consequences of your choice; (3) the type of investors (owners) there will be (e.g. some corporations cannot have certain types of trusts as shareholders); (4) whether the entity will own real estate; and (5) the person who will be handling records for you. There are many other issues to consider, as well.

I suggest that you start at the Secretary of State's website. It has some good tips on forming business entities. You can also find much information on the internet.

In reality, though, the questions you need to consider fall into the world of MBA's, JD's, and CPA's. It is probably a good idea to spend some money to get professional advice for your particular situation.

The only other bit of information I can add to the other great answer is this. If you start a corporation, be sure to observe all corporate formalities (enter into contracts only in the name of the corporation, don't co-mingle funds (use just corporate bank accounts for deposits and writing checks), be sure to have regular Board of Directors and Shareholder meetings in keeping with the requirements of your Bylaws, etc.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

I'd add a few thoughts:

1. Obtain professional advice on licensing and health and safety-related concerns from someone with experience in this business, or from a trade association (assuming the founders do not already have a lot of experience in these areas).

2. Have a business-insurance broker review your business plan and provide your company with suitable coverage (malpractice, fire, general liability, etc.).

3. Remember that if the business is sued, and even if the plaintiff cannot attack you personally because there are no grounds for applying "alter ego" theory and piercing the corporate (or LLC) veil, if the corporation or LLC becomes worthless as a result of a big judgment, you'll lose your investment in it.

One additional critical issue: At least at this moment (for there is reportedly a bill in the California legislature to change this), LLCs generally cannot be used for California businesses that require any kind of a license (e.g. dentists, doctors, accountants, lawyers, etc.) from the State of California. I believe that the California Department of Social Services licenses group homes. You should be sure that you can use an LLC for your business before you decide to organize one.

Proviso: My response does not constitute legal advice, as I do not know all of the relevant facts of your case, and I do not legally represent you. Although I strive to make sure the information I provide is generally accurate and useful, you should promptly consult an able lawyer who can learn the unique details of your case more completely in a confidential relationship to ensure that the information I provide, and your interpretation of it, is appropriate to your particular situation.

Contact: If you would like to discuss this matter further in a more private forum, please feel free to contact me directly at the email address provided through Law Guru or through my firm�s website located at BealBusinessLaw.com.