Structural Advantages of a Limited Liability Company (LLC) in California
Structural Advantages of a Limited Liability Company (LLC) in California
Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.
- Steve Jobs
A Limited Liability Company blends almost all the structure of business entities like a sole proprietorship,
Partnership, and corporation without their respective drawbacks. New business start-ups often choose an LLC as the structure of their business.
An LLC offers several key advantages for new businesses:
1. Chart Your Own Course
As the owner of a business, you want to carve out your own place under the sun by running your own show. An LLC can be run by a single person, and most states recognize you as the sole owner of the business. Being on your own, you can make decisions without
Consulting or needing the approval of other members of the company. Like a sole proprietorship, you own, manage, and operate your business without the liability issues of a sole proprietor. If you have a co-owner, you can enter into a mutual or operating agreement to point out the obligations and respective role you each play in order for the business to run smoothly.
2. Bypass Double Taxation
An LLC is treated as a "pass-through" entity that allows profits to be taxed only once on each member's individual income tax return. (You can also opt for declaring your LLC as an S corporation or
Partnership in order to receive similar "pass-through" treatment from the IRS.)
3. Limit Personal Liability
One advantage of structuring your business as an LLC is that your personal assets will not be used to pay off the debts or legal liabilities of the LLC. The only thing that the owner or investor may lose is the capital contribution that is invested in the company. There are instances where the owner of the LLC may be personally liable, such as when he/she personally guarantees a business debt, fails to exercise due care resulting in harm to a third party, or breaches his/her duties as an owner.
4. Limit Administrative Hassles and Paperwork
Setting up and maintaining an LLC is less complicated when compared to other types of business structures. An LLC can be formed by filing articles of organization with the relevant state office, and paying the corresponding fees. The application will indicate the name and address of the company, the identity of its member(s), and other information relevant to the business. There are no mandatory meeting or reporting requirements by the member(s) or any annual directors' meeting that is usually required by a corporation.
5. Gain Flexibility in Sharing Profits
Most businesses share their profits (or losses) based on the percentage of investment they have in the company. In an LLC it can also be applied as a basis for distributing the profits, but there are other ways to distribute the profits as indicated in the LLC operating agreement. There is an IRS rule about so-called special allocations that come into play that require allocations not based on ownership interest to reflect a legitimate economic circumstance as opposed to merely trying to gain a tax advantage for the owners.