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Cost-Benefit Analysis in Forming a Limited Liability Company

I’ve written a few posts now about Limited Liability Companies (LLC) in California. In prior posts, for example, I’ve discussed whether an LLC can be used to form a law firm in California. I’ve also described the minimization approach law schools in the US typically use when teaching about business entities, like an LLC. I’m going to talk about LLCs in this post, but the basic logic I’m describing will apply to other types of entities also. In this post, I am going to expand on this idea of minimizing tax and legal liability. Most law schools start there and, unfortunately, also end there which means there is a bias towards always forming an LLC because, essentially, why would wanting to minimize tax and legal liability ever be a bad thing? In my view, it’s not a bad thing, but it might not be as good a thing as you initially think. The reason is because of Cost-Benefit Analysis. In other words, forming an LLC will result in several benefits, advantages, or positives. If you just stop there, then you should clearly always form an LLC. Realistically, of course, forming an LLC will also involve certain costs, drawbacks, or negatives. This should not be a groundbreaking concept to anyone because the same is true for all decisions you make in life. What ultimately matters when deciding to form an LLC is — like it is in other arenas in life — what the net result is. Do the benefits of having an LLC outweigh the costs of having an LLC? One relevant consideration here would, for instance, be whether...

Minimizing Tax and Legal Liability When Starting a Business

A lot of people now have side hustles or are otherwise self-employed. If you’re one of these people, you might have wondered at some point whether or not you should form a legal entity of some kind, such as a Limited Liability Company (LLC). Doing so is much easier now than it was, say, even 5 years ago. Many websites advertise that they will help you form an LLC in California, Nevada, or Delaware in 10 minutes or less for $99, for example. In this post, I’m going to discuss just LLCs given how common and popular they are. They are, by no means, the only entity out there. In 2021, for example, I wrote a post about whether you can use an LLC in California to form a law firm. Specifically, I’m going to describe something simple, namely how the question of “Should I form…” is taught in law school. Law schools in the US often address this topic in a survey course discussing business organizations or entities. At my law school, the survey course was, in fact, called “Business Organizations”. That course analyzed this question from the perspective of minimization. In other words, when forming a business or running a business, the typical owner is concerned about minimizing two things: Minimizing their legal liability. In other words, if their business does get into legal trouble of some kind (e.g. lawsuit from a customer or vendor, etc.), the business wants to limit the scope of their potential loss or exposure. Minimizing their tax liability. I’m sure you’ve heard many, many stories about how very large publicly-traded companies that...

California Consumers Can Cancel their Subscriptions Online

In this post, I’m going to go over a law that, as best I can tell, is unique to California. If I’m wrong and you have a similar law in your state or country, drop me a comment. The California law in questions is section 17602 of the California Business and Professions Code. As it is a California law, it only applies to California consumers. However, if I run a business and have to invest (e.g. buy new software, etc) to comply with section 17602 for my California-based customers, I see no reason not to apply section 17602 to my customers who aren’t in California also (as long, of course, as it benefits my business in some way). My marginal cost of doing so is basically zero. Section 17602 applies to transactions where consumers purchase a subscription to something, such as a magazine or a monthly-box service (e.g. each month you receive a new box of a certain category of item, such as men’s clothing, pet treats, etc). These subscriptions often are recurring on a monthly or year basis. The consumer — at least in theory — has the option to cancel their subscription at the end of each monthly or yearly-term. How it often works out, though, is that the consumer ends up being charged for things they weren’t expecting. This might be the consumer’s fault because they, for instance, forgot to cancel their subscription in a timely manner and ended up getting charged for another year. Or it could be because the company is unscrupulous and decided to ignore the consumer’s timely request to cancel their subscription....

California Temporary License Plates on New Vehicles

I’ve never bought a new vehicle in any state other than California. I’m guessing this happens in other states too, but the way it works in California is that you won’t get your actual metal license plates from the California Department of Motor Vehicles until several weeks after you actually drive your vehicle home from the dealership. It used to be that during this time, the only license plate you would have is a paper license plate that usually just had the name and logo of the dealership on it for advertising purposes. Once you got your metal license plates in the mail, you’d install them and throw your paper dealership license plates away. As you can probably guess, having no way to uniquely identify a vehicle for several weeks caused problems. There was no way to catch drivers who would evade automated toll systems at bridge crossings, for instance. FasTrak is a common system in California while in the Midwestern US and East Coast, E-ZPass is more common. Drivers of new vehicles could avoid parking tickets too. It was difficult to track vehicles used in crimes (e.g. bank robberies) as well. If you live in California, you may have noticed that starting in 2019, new vehicles started coming from the dealership with temporary license plates that look like this one. Instead of a paper plate that just had the dealership’s name and logo on it, the new temporary license plate comes with a unique identifying number that is assigned to that particular vehicle until the metal permanent license plate arrives. The reason behind this change is — not...

California Retaliatory Eviction (CA Civil Code section 1942.5)

Retaliatory eviction is one of the things that often arises when the relationship between a landlord and a tenant in California sours. As you can perhaps guess from the name, the landlord is evicting the tenant in retaliation for something the tenant did. As you should hopefully also be able to guess, the word “retaliation” implies a timeline — the landlord must evict the tenant for something they have already done. In other words, the tenant must do something first and then the landlord must evict them in retaliation. A tenant cannot claim the landlord is evicting them out of retaliation when the eviction came first and the tenant’s action came second. (True story: I once had a case where the tenant tried to do this.) The governing statute for residential retaliatory eviction in California is section 1942.5 of the California Civil Code. In this blog post, we’ll go over it. As usual, this post will just be an overview and will – by no means – be an exhaustive description. Please take a look at the full text of Section 1942.5 yourself or consult an attorney in your area regarding your particular situation. If you are in a commercial landlord-tenant situation, retaliatory eviction under Civil Code 1942.5 does not apply to you, but you may have an equivalent against retaliatory eviction under a 1981 California Supreme Court case called Barela v. Superior Court, 30 Cal.3d 244. Section 1942.5 of the California Civil Code basically establishes three categories of activity that could qualify as retaliatory eviction. A lot of stuff can qualify as retaliatory eviction, but not everything. In my experience,...

California Will Drafting – Disinheriting Your Children

Last time, I posted about how to omit, disinherit, or otherwise leave your spouse out of your will. The rule there was that under California Probate Code Section 21610, you can’t disinherit your spouse by simply not mentioning them in your will. California will assume that such an omission was accidental and give your spouse an intestate share anyway. This time, we’re going to talk about disinheriting your children. The rule is very similar to disinheriting your spouse, except this time, we’re talking about California Probate Code section 21620, simply not mentioning your children in your will is not enough to disinherit them. Unless you can prove one of the section 21621 exceptions apply, California will assume you didn’t mention your child by accident and then give them a share equal to what they would have gotten under intestacy. One reason for this is that California recognizes that while people should update their estate planning documents after life-changing events (e.g. getting married, having kids, etc), not everyone does that so every will and trust will always be out-of-date and can’t be read literally. As with omitting your spouse, there are a few ways in which you can actually leave your children out of your will completely. Those ways are enumerated in Section 21621 of the California Probate Code. You left your child out of your will intentionally and that intention is apparent from the will in some way, You left property to the parent of the child instead of leaving the property to the child directly, or You provide for the child in some other way outside of your...