LLCs As Business Entity Choices in California
If you are going to do business in California, you need to have a business entity to protect you from the 100,000 plus attorneys in the state. An limited liability company may be your best bet.
Limited liability companies have been around forever, right? Nope. The first appeared less than 30 years ago in Wyoming. They were created to help small businesses.
California is a notoriously bad place to do business given the taxes, fees and regulations. The state is also slow to acknowledge new business developments. In fact, it didn?t start allowing LLCs until the early 1990s.
A limited liability company is much like Frankenstein, but in a good way. It takes the best elements of other entities and ties them together in a way that simply works.
Few small businesses can withstand being sued, particularly if your personal assets are at stake. The LLC was designed to prevent losing your personal assets by providing the same liability protection found with a corporation.
No business owner wants to be double taxed as can often happen with a corporation. The LLC resolves this by borrowing the tax classification of a partnership, to wit, finances are passed through to the owners.
One might wonder why he or she should select an LLC over a partnership. The answer is liability. A partnership provides no protection to the owners, while an LLC does.
It may sound like the LLC is perfect for any situation. It is not. There are a couple of occasions when it can be a bad choice for your business.
Many businesses are started with the idea of going public. If this is your goal, an LLC is a bad choice. Simply put, you cannot take it public. The LLC does not have shares, so there is nothing to trade!
Another potential problem has to do with taxes for a certain type of LLC. Many states allow a single owner LLC. The IRS requires that such entities have the owner file as a sole-proprietor, which means there is no real tax advantage.
Another danger with the LLC is the lack of formality. This can be a good thing, but it can also lead to laziness and sloppiness by owners. You must practice good business administration to avoid this problem.
The best entity choice for your business is highly dependent upon what you will be doing. The LLC is often the best choice for many, particularly in California, but make sure to get professional advice on the issue.
Find out more about California incorporation services.
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