Does my corporation have to have more than one director?
Not necessarily. In California, the default rule is one director per shareholder, and if there are more than 3 shareholders, then 3 minimum. You can always have more than you need.
What’s the bare minimum I need to operate as a corporation?
In terms of capital (i.e., cash money), it depends on your business; one common rule of thumb is 3 months’ worth of cash to run the business. If you mean compliance, you’ll need annual minutes and, in California, an annual filing with the Secretary of State. You’ll also need to memorialize extraordinary transactions, like leases and financings, in your corporate records. Without minutes and/or consents, you could expose the shareholders personally to liability.
What are corporate minutes?
Corporate minutes memorialize actions voted on and authorized by the corporation’s shareholders and directors at duly noticed meetings. Keeping these minutes up to date is critical to maintain the corporation’s liability shield, because without them, a claim could be made that the corporation as an entity separate from its shareholders wasn’t being treated seriously and [...]
What’s the bare minimum I need to operate as an LLC?
The answer to this is similar to the answer for the same question for corporations. However, with LLCs, unless the members require it in their operating agreement, there’s no requirement for meetings and consents, unless the written consents are required by a third party, like a bank. This is the reason some folks try to use LLCs instead of corporations.
Are my expenses in setting up the corporation or LLC deductible?
Yes. But depending on what stage the business is at, they may not be immediately deductible as an operating expense, but may need to be treated as a start-up expense. This can get complicated; you should consult a tax advisor.
Do I need a separate bank account for my corporation or LLC?
Remember, one point of the entity is to keep your business separate from your personal, thereby protecting the personal assets. So, the answer is going to be yes. As such, that will also involve obtaining a tax identification number.
Do I have to pay directors and officers?
No. But depending on the directors' background, level of experience, and the value they bring to your business, you may want to consider some kind of compensation or even equity. Not only are they worth it, but you’ll get a commitment from them that won’t otherwise exist if they’re just donating time and expertise. Specifically with respect to officers, there is an expectation of payment.
What’s the difference between a member in an LLC and a shareholder in a corporation?
I’m proud of you for asking such a clever question. Makes me wish the answer was just as thoughtful. Alas, it’s not: there’s no difference. A shareholder in a corporation, and a member in an LLC, are both nomenclature for defining owner. In fact, LLCs are flexible enough such that they can be structured to look like corporations, so their owners may also end up being “shareholders”. All that said, members in LLCs and shareholders in corporations are governed by different statutes, so their respective rights may differ.
What is “par value”?
It used to mean more than it does now. California has dropped this as a concept, and where it’s still used, it’s for tax and fees purposes. Some states tax corporations based on capitalization, and they use par value to assess that tax. So you should not just “pick a number”. Some of the fees and taxes can be very expensive, so proceed cautiously. Delaware, for example, uses par value.
I want to discontinue my LLC in California. How do I do that?
Terminating an LLC in California is a pretty simple affair. I wouldn’t blame you if this is the one thing you choose to DIY, since you can do it online. There are legal issues, though, in terminating an LLC or any entity. For example, you need to make sure that the LLC’s debts are paid [...]
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