Is an LLC the right business structure for you?
Limited Liability Company (LLC) business structure is not for every business. There may be good reasons why you should form an LLC. We hope this blog post will help you determine if an LLC is right for your business.
What Is an LLC?
An LLC is a type of business organization allowed and filed with the state. The LLC was mainly created to limit the personal liability of the owners (like a corporation), but also to allow the business to be taxed like a partnership.
- LLC owners are called members (comparable to shareholders in a corporation).
The members select managers, who run the day-to-day operation of the business (comparable to corporate directors and officers).
Of course, in a small LLC, the members and managers may be the same people.
Do I Need an LLC to Start a Business?
It is not necessary to form an LLC in order to start a business. In fact, due to the minimum $800 Franchise Tax Board (FTB) yearly fee, we encourage clients to start with Sole Proprietorship - the lowest cost business structure.
An LLC is only one of several ways of organizing a business. Some other options are:
Sole Proprietorship. This is where a single person is the owner of the business. The owner does not have any protection from personal liability for business debts. No minimum state tax fee
General Partnership. This is the simplest arrangement where two or more people own a business. The partners do not have any protection from personal liability for business debts, or for actions of the other partners taken within the scope of the business.
Limited Partnership. A limited partnership has two types of owners: general partners (who operate the business, make the decisions, and have personal liability), and limited partners (who are basically investors who do not have the right to operate the business or make business decisions, and do not have personal liability for business debts).
Corporation. In many ways similar to an LLC, a corporation is owned by the investors (called shareholders or stockholders), who provide the funds, assets, or services used to operate the business. The shareholders elect a board of directors, who are primarily responsible for major business decisions. The board of directors also selects officers, who are responsible for the day-to-day operation of the business. In a small corporation, the shareholders may also be the directors and officers.
Why Would You Need an LLC?
When choosing the form of your business, numerous considerations come into play, including personal liability, ownership, and management, cost of forming and registering the business, and taxation. Reasons you might want an LLC include:
Limiting your personal liability for business debts. With an LLC, only the assets owned in the name of the LLC are subject to the claims of business creditors, including lawsuits against the business. The personal assets of the LLC members cannot be claimed to satisfy business debts. For most people, this is the most important reason to form an LLC.
Raising capital from investors. This can be done by bringing in other members who contribute funds, property, or services to the business.
Tax advantages. There is usually no separate tax levied on the LLC itself, as there may be with a corporation. LLC profits or losses are generally passed on to the members, as they would be with a partnership.
Forming an LLC
Schedule a one-on-one consultation today to see which business formation is the right fit for you.
Our Business Formation Service offers:
- Business Formation (LLC, Inc, Professional Corp)
- Taxation consultation (S corp, partnership, single member LLC)
- First Statement of Information filing
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Questions or concerns regarding your IRS situation? Contact us immediately for a FREE no-obligation consultation at (818) 230-5710 or Info@IRSRelief.Tax