Legal Question in Business Law in California

Re: Setting up a web-based business

LLC is fine. A S-corporation is also fine. Need to know what type of business, your goals and objectives to advise properly?

Re: Setting up a web-based business

Your concerns are wise; personal losses from any kind of proprietorship business, store-front or Web, are always a concern.

Both LLCs and corporations are subject to an annual franchise tax. Both pay $800 a year minimum. However, LLCs also pay an additional franchise tax which is a percentage of gross revenues.

For this reason, businesses that have relatively large sales on small margins per dollar of sales generally are better off as corporations.

On the other hand, LLCs can deduct (or pass through) certain not-at-risk losses which corporations (S or C) cannot. Therefore, LLCs are often better for businesses such as real estate, farming and research-and-development that may have large losses of investor funds in the early years before they are profitable.

Often, the choice depends more on tax and accounting issues than strictly legal issues.

By the way, when a for-profit corporation is formed by filing articles of incorporation with the Secretary of State, it starts life as a "C" corporation, and becomes an "S" corporation only upon the stockholders filing a joint application with the IRS on Form 2553 and the application being accepted.

I can't say whether you should have insurance in addition or not, but I certainly advise having a discussion with an insurance agent that handles a fair number of small business accounts and seriously considering his or her recommendations. Product liability can be a concern.

Re: Setting up a web-based business

The answer to your questions can only come from discussions that include both your attorney and your tax advisor. Any of the corporate structures can protect your personal assets. The difference between them relate to tax issues, which will be determined by the proposed business needs. Feel free to contact me to discuss getting the advice and help you need.