If you're starting a corporation or a limited liability company in California, a key step in the process is filing your articles of incorporation. Your corporation's existence is legally established when you file the articles with the California Secretary of State, which charges a fee for the filing. Currently the fee for a general stock corporation is $100, and the fee for an LLC is $70.
When you're starting a business, the decisions you make early in the process are extremely important because your choices now will have effects throughout the life of the company. You'll have to decide how the business will be structured, and the type of entity you choose will have a bearing on a range of matters, including taxation, personal liability and division of profits.
Let's say you've worked hard for years to build a profitable business. You may have even spent significant time away from your family to raise finances and manage operations. As an entrepreneur, you probably realize, too, that once your company reaches a certain level of profitability, selling the business may be the best move for its growth and your future.
The Bankruptcy Appellate Panel of the Ninth Circuit ("BAP") recently issued the opinion, Yellow Express LLC v. Dingley (In re Dingley), BAP No. NV-13-1261-KiJuTa (9th Cir. BAP Aug. 6, 2014), which held that a creditor does not violate the automatic stay by maintaining a state court contempt proceeding against the debtor because the state court contempt proceedings related to court-ordered sanctions for the debtor's discovery violations. In 2009, the appellants had filed a state court action against the debtor and two LLCs he owned and controlled. One year prior to the bankruptcy filing, the state court ordered the debtor and his two LLCs to pay sanctions to appellants for their willful failure to appear for depositions. The debtor and the two LLCs did not pay the sanctions. On April 2, 2013, the state court judge issued an order to show cause ("OSC") why the debtor and the LLCs should not be held in contempt for nonpayment. The debtor filed a Chapter 7 proceeding on April 8, 2013.
In the excitement of starting a new business, many California small business owners give little thought to the state they choose for incorporation or the formation of a LLC. As a result, they opt for California as the logical choice. But with the majority of small businesses failing shortly after they open their doors, a basic understanding of California's trust fund doctrine should cause a business person to pause before incorporating or forming a LLC in California, since the ramifications down the road can be profound.