Are you interested in forming a San Diego Limited Liability Company or LLC? What is a Limited Liability Company or LLC and why would you select this corporate entity over the other options available under California law?
What Are the Advantages and Disadvantages of an LLC?
What are the advantages and disadvantages of an 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.
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.
An LLC requires less paperwork and annual upkeep than an S Corporation or C Corporation. The mission and determination of how the company is going to be operated are generally addressed in the articles of incorporation and bylaws. The relationship between the owners of an LLC should be governed by a custom tailored, well-crafted operating agreement.
The disadvantages of a San Diego Limited Liability Company or LLC are mostly associated with tax limitations (required to be on a calendar tax year and not a fiscal tax year).
Taxes are Separate Issue
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.
You Need the Experienced San Diego Business Formation Attorneys at the Watkins Firm
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 formation attorneys at the Watkins Firm have more than 40 years of experience with business planning and formation of a San Diego Limited Liability Company or LLC. Our attorneys provide sound business counsel and work with you to develop proper corporate documents to get your new company off to a strong start and position you for success. We invite you to review our podcast Episode 2 – Starting a Business as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.
