Legal Question in Business Law in California

God forbid, you do not want a general partnership in a restaurant. You will want either a corporation or an LLC to protecte you against the liability of the restaurant and each other.

By Grace...

Shawn Jackson ESQ. (707) 584-4529

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I would agree with Mr. Jackson. Having a C or S Corporation or an LLC for your business would be a better way to go to limit the liability to your business and partners. Running a restaurant opens you up to a number of liabilities from the lease of your building, customers, to employees etc. Having a business entity that will limit liability is an important tool that is worth the cost.

Should you have any questions. Feel free to contact me or an attorney in your area.

Kind regards,

Jim

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424-229-2560

First, a general partnership cannot have a limited partner. As soon as you add a limited partner, your entity becomes a limited partnership. I believe a limited partnership is a suitable form of business organization for businesses that will have a very small management group that puts the business together and runs it, and a larger group of hands-off investors (the limited partners). For two guys starting and running a business together, a limited partnership is not suitable, and in addition, setting one up is somewhat complex.

Next, I'm not sure where you get your tax rate figures for LLCs. Sure, there is a gross receipts tax that kicks in when receipts exceed $250,000, but it seems to be less than 1% (e.g., it is $6,000 on receipts of $1,000,000),

Still, I think a corporation with an election to be taxed as an "S" corporation is probably the best way to go for a restaurant business. An LLC might be better if you were buying your building or expected losses for years before turning profitable; otherwise, probably not.

Use of any kind of a partnership is somewhat discouraged because of the exposure of the partners to liability, including that resulting from the misdeeds of the other partner.

Finally, whatever form of business entity you use, I recommend having a co-promoter agreement between the two of you, outlining the duties and responsibilities of each, who will be putting up the capital, who will be working in the business, rates of pay, etc.