If an individual is looking to form a new business, they may want to consider forming a Limited Liability Company. This type of business structure is similar to a corporation but is less formal, more flexible and offers several benefits, including personal liability protection, for its owners.
What is an LLC?
A “Limited Liability Company” (LLC) is a hybrid between a partnership and a corporation. It has the operating flexibility and “pass through” tax treatment of a partnership with the limited liability for its “members” accorded to corporate shareholders. “While an LLC is a business entity, it is best to think of it as an unincorporated association,” said Anthony Spotora, a Los Angeles-based business attorney. “Although sometimes incorrectly referred to as Limited Liability Corporations, they are in fact not corporations.”
LLCs are highly attractive to some because of the flexibility in tax choices. LLC business ventures qualify for a single layer of taxation, which prevents ownership from being double-taxed under the corporate tax structure.
“However, LLCs may also elect to be taxed under a corporate tax structure if they wish,” Spotora said. “In fact, the full list of taxation choices for LLCs are as a sole proprietor, a partnership and either an S- or C- Corporation.”
LLCs also often require much less administrative paperwork and record-keeping than do corporations. The laws also allow LLCs to customize the rules for how the LLC is best operated.
Some people feel that LLCs do have disadvantages, however.
In California and a handful of other states, LLCs must pay a franchise or capital values tax on the business.
LLC’s in California must pay an annual tax to the state’s Franchise Tax Board. The fee is $800 per year, though if the LLC’s net annual income exceeds $250,000, then there will be an additional fee that must be paid, too.
Also, some people believe LLCs have a more difficult time raising financial capital because investors may be more comfortable investing funds into corporate firms.
If a person is considering making their new business venture a Limited Liability Company, it is important for them to speak with an experienced attorney.
Anthony Spotora is a Los Angeles entertainment lawyer and Los Angeles business attorney. To learn more, visit Spotoralaw.com.