You will need to choose a form of business. Your options are:
In a sole proprietorship, you are the sole owner and the income of the business
is considered to be your income for tax purposes. As a sole proprietor, you are
also completely liable for all the debts, obligations, and liabilities of the
A partnership is the same as a sole proprietorship, except there is more than
one owner. If you operate as a partnership, the first thing you will need will
be a partnership agreement. The partnership agreement will define the various
percentages of ownership and the responsibilities of the partners in running
the business. Don't assume that you would be able to draw up such an agreement
with your friends without the help of an attorney. There are simply too many
If you operate as either a sole proprietorship or a partnership,
and you use a name for the business that is not your own name, then you will
need to file a DBA notice. This is a simple legal notice, published in any
local newspaper, that John Doe is now doing business as InterGalactic Marijuana
Store. This DBA notice will be required before you can get a bank account in
the name of the business.
If you operate as a corporation, you must file articles of incorporation with
the Secretary of State and pay a fee for filing. It is a straightforward
process of filling in a few forms and sending them in with the fee. There are
various online services that will do it for you. In California, it typically
costs about $1,000 per year to maintain a corporation.
A corporation is considered to be a separate legal "person".
Therefore, it produces various effects on your taxes, potential liabilities,
and other issues. The biggest effect is on taxes. It could produce a double
taxation on your revenue. That is, when the corporation earns the money, it is
taxed once. Then, when the corporation pays you your paycheck, you pay income
taxes on it. The difference can be quite large.
You can avoid this problem with a Subchapter S filing with your
Federal tax return. A Subchapter S filing allows you to treat all the income of
the corporation as if it was your personal income. This avoids the tax at the
You can operate as a non-profit 501(c)3 corporation. These are so named because
they are defined under section 501(c)3 of the Internal Revenue Service
regulations. Non-profit organizations are not supposed to make a profit and
they have various other special rules. Compared to operating a regular
corporation, they can be an administrative pain in the butt.
Some clubs have chosen to operate as non-profits because of their
says that caregivers are entitled to "reasonable compensation". There is some
argument that "reasonable compensation" does not include "profit" and some
attorneys will recommend a non-profit as a method of providing additional legal
Consult an Attorney
Your form of business is not something you should choose lightly for
this kind of business. There are many issues and ramifications that are far
beyond the scope of this web site. The money you pay the attorney will be good
insurance against problems later.