It’s a question we hear a lot. Should we be an LLC?
Many small-business owners have heard that they should operate their business as an LLC (limited liability company). But is that true for you? Three major factors you should consider in choosing a type of business entity are liability protection, taxation, and convenience. For many businesses, an LLC is the best choice.
The LLC—A Flexible Option
Liability protection, taxation, convenience—on each of these three major factors, the LLC is an attractive entity for the small business.
The owners of an LLC are generally not personally liable for the business’s debts. If the business gets sued, or can’t pay its bills, then you as an owner don’t need to worry about having to pay out of your personal assets. This is usually true, but there are obvious things to consider before making this conclusion.
When it comes to federal taxes, LLCs have options. You can choose to have the business profits pass through and be taxed on your personal tax return (like a sole proprietorship or partnership), or you can even choose to be taxed as an S-corporation, which could save you big money on taxes each year.
The convenient thing about LLCs is that you can structure the ownership in almost any way you want. How much authority each owner has, what share of profits each owner gets, how to vote on major decisions—these issues and more can be decided by the owners. Also, the paperwork you file with your state to create and maintain an LLC is usually minimal.
Note that in California there are some reasons why you would not want to incorporate as an LLC, especially the LLC Gross Revenue tax, which imposes a tax if your revenues eclipse $250,000 annually. Of course, there are ways to work around this problem, and at Bridge Law Law Firm, we’ve had tremendous success in assisting businesses in finding the right fit.
Before you choose any type of business entity for your next business, make an appointment with our attorney who can help you choose the right entity for your overall life and business reality.