Corporation and LLC Information

Business Questions

Q. What are the benefits of incorporating  my business?
A.  The principal reason to incorporate is to limit liability of the business owners. This can be done by creating a corporation or a limited liability company (LLC). It is not enough, however, to merely incorporate. The corporation or LLC must be operated as an entity independent of the owners, observe normal business amenities (such as conducting shareholder and director meetings) and carry sufficient insurance to cover the risks of its operations. It is also important to note that business owners will lose their limited liability as to obligations they assume or guarantee, such as bank loans or leases.

Q. How much will it cost to create a California corporation or limited liability company?
 Creating a corporation or LLC requires both governmental and filing fees and legal fees. The governmental and filing fees are between $180 - $ 220. In addition, corporations and LLCs are assessed minimum franchise taxes of $800 per year by the state of California. Legal fees for a simple incorporation or LLC run between $1000 - $1500.  If the owners desire a buy-sell agreement, the cost will increase by between $1000 - $2500, in the usual case.

Q. How quickly can I form a California corporation?
 We can assist you in forming a California corporation in as few as two days, although there is much higher filing fee for immediate formation. Typically, formation can be effected within 5 to 7 business days without significant additional cost.

Q. How do I know when my business partner and I need a Buy-Sell Agreement?
A. Buy-Sell Agreements are advisable for any valuable business having more than one owner. Such an agreement should provide for the optional or mandatory buy-out of one owner (the Seller) by the others when the Seller dies, retires, or becomes incapacitated. The Agreement should set the purchase price and terms for the buy-out, as well as any restrictions on the Seller’s competition with the business after the buy-out.  Life insurance can also be used to fund a buy-sell agreement.

Q. Can a non-competition agreement be enforced in California?
A.  In most cases a covenant not to compete cannot be enforced in California unless it is given in connection with the sale of an interest in a business in which the seller has sold and been paid for “good will”, or is necessary for the protection of trade secrets. Good will is generally understood to be the tendency of the customers of a business to continue to patronize it, an intangible asset which is over and above the value of the tangible assets of a business.

© Alex J. Llorente  2012