Forming an LLC or Corp in CA is too expensive for my very small business.

Corporations in California get a free pass on the $800 in the first calendar year of operations, whereas LLCs don't. Therefore, if you form a corporation in January '11, you won't owe the $800 until March of '12. This is your best bet and operate as a sole proprietorship in the meantime. Hope this helps. If you found this useful, please note so by clicking the thumbs up button. Legal disclaimer: This information is not intended to create an attorney-client relationship and is provided for general informational purposes only pursuant to the .com community guidelines.

A lawyer will always recommend having the liability shield of a corporation and LLC, even if it means paying $800 per year franchise tax. You can think of it as a form of insurance. While it's somewhat true that you don't need a liability shield if you have few personal assets to shield, it's also true that one mistake can result in a lawsuit and judgment against you. It's a long lasting mistkae, since judgments in CA are good for 10 years and renewable for successive 10 year periods. . If you absolutely have to, you can start out as a sole proprietor, and as soon as your business takes off, then form an LLC or a corporation. At least get a reputable "how to" guide or two, like those produced by Nolo. One is linked below. Disclaimer: Please note that this answer does not constitute legal advice, and should not 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. This answer does not create an attorney-client relationship.