When a person runs a company or organization without the legal protections afforded by registering a business entity with the state, they may be held personally liable for debts, lawsuits, and judgments against them, even if the action was for business purposes. Forming a limited liability company (LLC) is one way that business owners can protect their personal assets while still personally managing their company. A LLC is run by “managers” or “members,” which generally can be individuals or other entities, and these are the people who are making the decisions on behalf of the LLC.
Reasons to Form a Limited Liability Company
A LLC differs from other types of business entities in numerous ways. Some of the benefits to forming an LLC include:
Limited personal liability
The LLC can enter contracts, make/receive payments, hold itself out to the public under its registered name, hire staff, and hold accounts
LLC’s are not taxed like other business entities; the profits and losses are tracked on the member/manager’s tax returns. This can be a positive or a negative depending on the success and objectives of the LLC
There can be more than one member/manager to share in the profits/losses/decisionmaking
An LLC may be taxed as a corporation, which is advantageous in certain instances
Some disadvantages include:
The profits, since filed on individual tax returns, are taxable income (even if the profit is not distributed in the form of income)
Managing members may pay self-employment taxes
Difficulty in raising capital in comparison to corporations and other business entities, as there are no shareholders
There are many pros and cons to forming a LLC. It is important to recognize that an LLC is not a corporation; there will not be shareholders and the structure of the business and decisionmaking procedures is wholly different. A LLC is most similar to a partnership or sole proprietorship in how it is managed and taxed, but has the added benefits of limited liability, making it a very attractive business model for modern businesses.
Hire an Attorney to Help Form Your Limited Liability Company
Determining whether a LLC is the right entity to form for your business requires the assistance of a knowledgeable business entities attorney. At TurboAdvocate, we can help you accomplish whatever your objectives are for your business, and ensure that your personal assets are protected in the event that there is litigation involving your company. We can explain all of the available options, the pros and cons of each, and how each type of business entity will affect you, your business, and your future.
Reach out to The Turbo Advocate today by calling 510-414-8117 today to speak with a seasoned business attorney in California.