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Do qualified joint ventures need to register as a legal entity.

San Diego, CA |

My wife and I are starting up a photo and video company. We were thinking of being a qualified joint venture. We plan on registering our fictitious business name. Do we need to register as a general partnership/ do we need to register at all. What would that be if it is needed.

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Attorney answers 3

Posted

My threshhold question is why are you not considering an LLC or corporation? By definition, a joint venture envisions two or more entities operating something jointly. You have two people but not two entities. An organization of two people is a partnership.

If you create an LLC you can allocate interests as you will, or you might consider an S corporation. You can also have an LLC taxed as an S corporation.

When you say "qualified joint venture," what exactly are you envisioning?

In terms of registration, that depends on the underlying structure. Someone will need an EIN among other things, unless you are using your social security numbers. One creates LLC's and corporations under state law, whether in CA or elsewhere.

What you propose appears to leave you exposed to liability. A joint venture is like a partnership. A traditional partnership exposes all partners to liability for the acts of all other partners. An LLC or corporation avoids that liability exposure. So does a limited partnership, but i do not think that is your best form.

I strongly urge you to consider an LLC or a corporation, perhaps an S corporation. i think that structure will likely be better suited to your needs. You may wish to read my Avvo article, the link of which I have supplied.

Ken

Asker

Posted

Our biggest reason against a LLC is the financial burden in California.(the yearly tax minimum) If we form an LLC we aren't qualified for the 'Husband-wife qualified joint venture' for tax purposes. We want to have as little fuss as possible ... We do, however, have a particular name that we would like for our company rather than just using our last name. (are there any requirements for that? or could we just say Mr. and Mrs. ___ doing business as ____) Would liability insurance be a possibility? Would we be able to add a couple of liability clauses in our contracts to help protect our personal assets? Is it possible to do a sole proprietorship for both of us- in a qualified joint venture? If so- what steps do we need to take to do business under a fictitious name and how do we protect ourselves without the added cost of an LLC?

Kenneth Allyn Sprang

Kenneth Allyn Sprang

Posted

You are right that Califonria imposes that huge annual $800 fee. One possibility is to see if you could be a limited partnership and whether that has the annual fee attached. I had forgotten for the moment that you are a community property state which may impact options for husbands and wives. Let me take a look and get back to you. Ken

Posted

I agree with my colleague that a business entity that provides a shield for your personal assets is a better choice, and a joint venture, partnership, and DBA provide no shield. If you do have assets to protect, then protect them. General liability insurance is a wise and generally modesty priced asset too, especially for advertising injury claims.

A photo and video company is fairly exposed to contractual litigation, so $800 shouldn't seem like too big a barrier. For your 1st taxable year, a corporation isn't subject to the minimum franchise tax (but is still liable for a franchise tax on its net income). If a corporation is an LLC treated as a corporation, it's also not subject to the minimum franchise tax the 1st taxable year.

Investing in a good CPA and some good legal advice are things you really can't afford to not afford.

PLEASE READ THIS BEFORE YOU COMMENT, EMAIL ME OR PHONE ME. I'm only licensed in CA. This answer doesn't make me your lawyer, and neither do follow-up comments and/or emails and/or phone calls, and you shouldn't expect me to respond to your further questions if you haven't hired me. We need an actual agreement confirmed in writing before any attorney-client relationship is formed. This answer doesn't constitute legal advice, and shouldn't be relied on, since each state has different laws, each situation is fact specific, and it is impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.

Posted

The "qualified joint venture" is a tax status that allows a married couple to not be taxed as a partnership. However, being taxed as a partnership or not will make little difference at the end of the day.

I would underscore Ms. Koslyn's advice to all readers of Avvo. Often clients think they can save a few dollars by not using a lawyer. However, I could tell you many stories of clients who have ended up spending thousands when a few hundred dollars of my time would have avoided the problem. Being in business has costs, whether it is the $800 fee in California or legal and accounting fees. I am sympathetic to those costs for business folks--my own firm is in start up mode and facing those costs. Sometimes I reduce fees for a time for start up companies to provide some assistance. However, if one does not have the money to pay the lawyer and the accountant and franchise fees and the like, I would strongly advise waiting to launch. The risks of going it alone are just too great.

Like many things, most folks will not experience a debacle, just as most folks who speed down the highway do not wind up in fatal accidents. But enough debacles happen, that paying the modest costs up front is an even better investment than auto insurance.

Lest this sound like shameless self-promotion, I have learned that when there is a plumbing problem or a mechanical problem in my home to call a plumber or the right tradesman. I may think I can save some money doing it myself, but all too often, I make the problem worse because these are not my areas of expertise and I do not do them every day. I grown a bit at paying the plumber $125 an hour or so, but it is money well spent. Same with my auto mechanic and others who know things I do not.

Best of luck in your venture.