What is a Limited Liability Company or LLC? California residents who are starting their own businesses may be interested in an article detailing some of the benefits and drawbacks of forming a limited liability company. Entrepreneurs should consult with professionals to ensure that the tax implications are properly assessed.
An LLC has a few very important benefits for a business start-up. First, having the LLC as a separate business entity means that the owners of the company are generally shielded from liability for company debts. This means that their personal assets cannot be taken as part of a judgment or lien against the LLC. Second, there are many options as to how an LLC is treated for tax reasons. By default, an LLC is treated as a partnership and does not file its own separate tax returns. The LLC members report profit and loss from the LLC on their personal returns.
A useful aspect of an LLC, however, is that the members may choose to have the entity taxed as an S Corporation or a C Corporation instead of as a partnership. This can seriously affect the tax situation of both the LLC and the members themselves, so an attorney or tax professional should be consulted before changing the default election. One aspect of using an LLC is that, in reality, many lenders require a personal guarantee for any debts that the new entity will incur. This negates some of the limited liability protection.
Due to the wealth of misinformation on the Internet, relying on that information to make important tax and business decisions should be avoided. The experienced business attorneys at the Watkins Firm have decades of experience with business planning and formation of a Limited Liability Company or LLC. Our attorneys provide sound business counsel and work with you to develop proper documents to form your start-up and position you for success. Contact us today or call 858-535-1511 to speak with one of our attorneys personally for a free consultation.