Advantages of Forming an LLC

Advantages-of-Forming-an-LLC-Article-6-300x236When starting a business, serious consideration should be given to forming a limited liability company (LLC). While the key advantage, as its title suggests, is the protection of owners from incurring personal liability for the debts and liabilities of the business, there are several other features that make LLCs a preferred structure for your business. LLC owners may also choose their tax treatment, are subject to less onerous compliance requirements and have increased flexibility.

Limited liability. The members of the LLC are not personally liable for the debts of the business. In the event of a judgment, members can lose the amount of their investment in the company and nothing more. In this respect, LLCs are afforded the same extensive liability protections as corporations without the exposure to double taxation and maintenance issues that corporations face.

Tax treatment. LLCs are not regarded as a separate tax entity. Therefore, the LLC is subject to pass-throughtaxation, which means that income from the business is regarded as personal income for tax purposes. This income is not exposed to the federal taxation requirements of corporations. For income tax purposes, an LLC may be classified as a partnership, corporation or sole proprietorship.

Compliance requirements. Compared to other businesses entities, LLCs requirements are fairly simple to follow. In California, LLCs must file Bi-Annual Statements of Information and an Annual Franchise Tax Return, but are not obligated to hold annual meetings or appoint a Board of Directors. The local and state reporting requirements of an LLC are also minimal.

Flexibility. LLCs offer a greater degree of flexibility with respect to management, the obligations of LLC members and voting and profit participation rights. Specifically, an LLC in California can be managed by either its members or an elected management body. An LLC can retain members who are investors only and do not participate in the operation of the business if so provided in the Operating Agreement. Finally, in an LCC, the owners can provide for a profit and voting split that corresponds to their ownership percentages. In an S-corporation, in contrast, this would be difficult to execute. For these reasons, LLCs are great vehicles for partnerships.

Choosing a business structure involves consideration of many specialized factors.  DeAnn Flores Chase and her experienced team of attorneys at Chase Law Group, P.C. have many years of experience in helping business owners establish and maintain their LLCs. Contact Chase Law Group, P.C. at (310) 545-7700 or to schedule a consultation.