Whether you're purchasing a business or starting a new venture, you will have to choose a structure for your company. There are partnerships, sole proprietorships and corporations. Of these, we must often get requests to form what is called a “business entity” Three common options are the S-Corporation, the C-Corporation and the Limited Liability Corporation (“LLC”). But which is right for you?
Because any business venture can expose you to lawsuits, or if you think you might fall into debt due the business, then forming an LLC may be the right decision. Owners of limited liability companies are not personally liable for business debts.
LLCs also have tax benefits. Unlike corporations, the LLC is not a separate entity for tax purposes. This can reduce the tax burden for the LLC owner.
If someone sues the LLC, or if the business faces debts, only the business assets are at risk – not the assets and finances of the business owner. However, it is important to remember that this protection has limits. For example, creditors may be able to access your personal assets and finances if you act unethically or illegally.
Until then, read on to learn more about the benefits of the LLC structure:
Is an LLC right for my business?
As Inc.com explains, the creation of a a business entity, like LLCs and corporation structures is ideal in many situations. For example, if you own a store, a customer could slip and fall, which can result in severe injuries. If the customer sues you and wins, then your personal assets and finances will most likely be protected.
Although corporations also have this protection, LLCs have the advantage of being simpler and therefore better for many small businesses. The most important differences involve taxation.
Shareholders of some corporations are subject to “double taxation.” This means that both the shareholders' personal income and the corporation are taxed. In an LLC, the owner's personal income will be taxed but not the LLC itself.
However, not all types of businesses can form LLCs. Sevveral professions are barred from existing as an LLC. Examples of businesses that cannot form limited liability companies in California include:
- And insurance companies.
How much does an LLC cost to form?
In California, there is an $800 annual LLC tax. This payment is due on the 15th day of the fourth month after forming the LLC. The same due date applies to subsequent years. This tax increases if the LLC has an income of more than $250,000. There is also a $20 reporting fee that you will have to pay 90 days after forming the LLC, and then every two years.
If you have questions about forming an LLC or any business entity, purchasing a business, or writing contracts or you need to review contracts, contact Eric D. Anderson Law, LTD. We will help you comply with local, state and federal regulations.
Our firm offers both a subscription service on a monthly, quarterly or annual basis, as well as the traditional hourly fee options. Schedule a consultation with a Redlands commercial lawyer by calling 909-283-5494.