Legal Question in Business Law in California

Re: LLC vs General Partnership

You actually have a lot of questions rolled up into a single one.

The question of LLC v. General Partnership is one that does NOT relate to whether someone can sue you and/or claim damages. Instead, it relates to whether your personal assets are at risk should someone successfully sue.

Forming an LLC (Limited Liability Company) or corporation has, as one of its most important points, the fact that the owners generally have liability limited to their investment in the business.

The issue of warning labels is an important one not just for someone that chips a tooth, but also for the potentially much more serious issues relating to nut allergies.

You really should have a serious discussion with an attorney to discuss your options.

J. Caleb Donner

DONNER & DONNER

LEGAL WARRIORS�

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Westlake Village, CA 91361

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Re: LLC vs General Partnership

Nothing prevents anyone from suing. Puting a label on the box will provide you some defense, but does not prevent a lawsuit.

Changing the status of the company from a partnership to an LLC will provide you with some protections of your personal assets, as opposed to your business assets. Under a partnership, you would have personal liability as well.

Re: LLC vs General Partnership

First, your caption suggests that you were going to ask a question about use of an LLC instead of doing business as a general partnership, but then you never mention that subject again. I would strongly advise conducting this kind of business through an entity that limits personal liability rather than doing business as a general partnership. The possibilities would include an LLC or a corporation (which would probably elect to be treated as an 'S' corporation for tax purposes. General partnerships have the distinct disadvantage of leaving all partners exposed to personal liability for all business debts, including judgments.

Next, what you're referring to as a 'disclaimer' is more like a 'disclosure,' and I recommend making the disclosure on your Web advertising as well as on the packaging. Indeed, I think you should make some inquiries into the general subject of ingredient labeling (if you haven't already). As you know, food-product labeling is regulated by the FDA as well as many states.

Since no amount of prior disclosure, disclaimers, law compliance, etc. is complete protection against lawsuits (remember, even suits that have no merit which you eventually win will cost money to defend), I recommend discussing business liability insurance with a local agent or broker.

Re: LLC vs General Partnership

First, never be in a general partnership. It is the worst business option as it provides for increased (instead of limited) liability. Depending on how you want to allocate profit and loss, an S Corp. provides tax savings over an LLC. An LLC, at least in Cal., pays additional taxes based on revenue.

A disclaimer regarding nuts may not prevent someone from filing a lawsuit, but the disclaimer may provide you with a viable defense to the case. Your disclaimer may also want to warn folks of the possibility of nuts because some people are allegic to peanuts, and children under two years of age should never consume peanuts (as an allergic reaction may be fatal).

We provide business formation and counseling services for many clients in the food and retail industry. Give us a call if you would like to discuss this further. The call is free.