Small Business Attorney – Pros and Cons of Setting Up an LLC
Limited Liability Company (or LLC) is a business entity that features both the characteristics of an incorporated structure and a partnership. One element that an LLC has in common with a corporation is its limited liability, while its similarity with a partnership lies in flow-through taxation. An LLC is a legal structure mostly preferred by real estate holdings and small businesses.
Let us first define the terms limited liability and flow-through taxation. Limited liability is a type of investment wherein the owner is not financially responsible for the debts and obligations of their company. In essence, limited liability protects the personal assets of business owners and members. Flow-through taxation is simply defined as an income that is not taxed on the corporate level.
An LLC may consist of a single member, two or more individuals, or a corporation. It is considered a pass-through entity. This means that all profits and losses of a limited liability company are passed to its members, who settle it through their personal income tax.
Aside from its pass-through tax status, there are several advantages to establishing a Limited Liability Company. One major advantage is that it shields LLC members from any personal liability. Creditors can’t go after the personal assets of the owners to settle financial obligations of the business entity.
Since the members have full limited liability protection, most people see this as a form of insurance. Let’s say someone files a lawsuit against the company. The plaintiff is only entitled to the assets invested in the company. Because of limited personal liability, the other assets of the owners are secured against further claims.
Another advantage is the flexibility in management and operations. A Limited Liability Company is free to form any management structure agreed upon by its members. The affairs and activities of LLCs can be managed directly by the owners themselves.
There are a few disadvantages to forming an LLC as well, one of which is the cost of setting up this business structure. LLC formation requires business owners to file the Articles of Organization, as well as pay the filing fees with the state.
Depending on the state wherein the business files the formation documents, ongoing fees may be charged for annual reports and franchise tax. In the state of California, for instance, there is a minimum franchise tax fee of $800 that LLCs pay every year.
Most LLC attorneys or small business attorneys advise their clients to perform the legal maintenance of their annuity. A good record-keeping system ensures that the tax declarations of companies are well supported by necessary documents. This system will help protect personal assets from the debts and potential lawsuits of the company.
Although establishing Limited Liability Companies can be accomplished by the owners themselves, it is advantageous to work with an LLC small business attorney Orange CA throughout the process. This comes with a fee, but it ensures protection from any liability nevertheless.
Some LLC small business attorneys have two approaches to setting up this entity: one is an annual program that pays monthly and the other is paying one flat fee broken down into two payments.
Click here to learn more about the facts behind incorporating a company and the need for corporation attorneys.