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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. To the surprise of many, the LLC has not been around for all that long. The first one was created in the late 1970s in Wyoming of all places. California was extremely slow to do so, only allowing the entity in the early 90s. Once it became apparent the entity was very popular, the state government expanded its use. So, what exactly is a limited liability company? It is a business entity thought up in a politician’s mind. The goal was to ease the burden on small businesses, and it does just that. Liability should be a big concern for any business owner. If you use an LLC entity, however, you are protected from personal liability for any business debts. At the same time, you do not have to deal with the paperwork of 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. At this point, you might think the LLC is the obvious choice if you are going to start a business. It often is, but there are a few exceptions. Here are two that come to mind. 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! Taxes are a killer from both a personal and business point of view. Certain LLCs can lose the benefit of being taxed as a partnership. A single owner LLC is taxed like a sole proprietor by the IRS, canceling out any tax benefits. 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. All and all, the LLC is a very good choice for many smaller businesses. In a state like California, you get the liability protection of a corporation with the tax ease of a partnership.
Article Source: http://www.financemanual.com
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