Month: October 2011

LLC or INC? – Making the Right Choice for Business Formation

llc-vs-inc1There’s more to starting a business than coming up with a great idea. A business owner also must decide how the business should be structured. Until recently, most California businesses chose between sole proprietor, partnership, and incorporation. However, California businesses are now choosing to go with a limited liability company (LLC) structure more than any other. An LLC offers more legal protection of personal assets than a partnership, but retains the tax savings pass-through characteristics.

Unlike LLCs, corporations can go public. For that reason, venture capital companies prefer to work with corporations rather than with LLCs.  But unless you are planning to take your California business public, an LLC may well be the best business formation structure to serve the business needs of the owners.

Unlike corporations, LLCs don’t suffer from double-taxation, in which the corporate entity is taxed and then its shareholders’ dividends are taxed as well. This benefit applies to LLCs that are classified as partnerships for tax purposes. An LLC tax preparer simply checks a box on his or her federal return to indicate how the organization will be taxed. Earnings and losses pass through to the owners and are included on their personal tax returns.

There’s also less paperwork involved with running an LLC than a formal corporation, and LLCs are the most flexible when it comes to organization. There are fewer rules regarding who can be a shareholder, and they also tend to be more informally run than a regular corporation.

Sitting down with an Experienced Attorney in California Business Law is the best way to sort through the tax and organizational ramifications of business formation, and figure out what’s right for the needs of your business. In the San Jose, CA area, as well as any other area in Northern California, contact the Wade Law Group at (888) 909-9430.

Defenses to California Business Contract Disputes

post1If a business in California is being accused of breaching a contract by the other party, it must be determined whether there are any defenses that call into question the validity of the contract. There are some defenses that make a contract unenforceable (void), and other defenses that give the parties the option to enforce the contract (voidable).

1) Legality of the Contract: Although two persons may enter into a contractual agreement, if the subject matter of the contract is illegal, the contract is invalid and unenforceable.

2) Capacity of the Parties: In order to be bound to a contract, the parties must be competent to enter into such a legal arrangement. Underage persons, persons who are mentally ill, and intoxicated persons are usually not held to the contracts they enter.

3) Mistake, Duress, and Fraud:

a) A mistake by both parties to a contract on an important issue makes the contract unenforceable.

b) Duress is the use of physical force or mental pressure by one party to make the other party agree to the contract, which is ultimately unenforceable.

c) Fraud is the intentional misrepresentation of an important issue of the contract which makes the contract voidable by the party upon whom the fraud was perpetrated.

4) Unconscionability: A contract may be unenforceable if it is found by a court to be flagrantly unfair.

5) Statute of Frauds: In many instances, contracts do not have to be in writing to be legally binding. However, a law known as the “statute of frauds” requires that some contracts must be written to be valid.

If you are a California business owner in the San Jose area, as well as any other area in Northern California, with more questions about defenses to contract disputes, contact the Wade Law Group at (888) 909-9430.