Business Strategies

A limited liability company, or LLC, combines features of a corporation and a partnership. It has become a popular choice for small businesses, and for good reason.

Personal liability protection

Like a corporation, an LLC generally separates your personal assets from the business's debts and lawsuits. Owners, called members, are usually not personally liable for the company's obligations. As with any entity, this does not protect you from your own wrongful acts or from debts you personally guarantee, and it can be undermined if you mix personal and business finances.

Flexible taxation

By default, a single-member LLC is taxed like a sole proprietorship and a multi-member LLC is taxed like a partnership. In both cases, profits pass through to the owners' personal returns without a separate entity-level federal income tax. An LLC may also elect to be taxed as a corporation, including as an S corporation, if that produces a better result. That flexibility lets the structure adapt as the business grows.

Less formality

LLCs generally face fewer formal requirements than corporations. There is typically no requirement for annual shareholder meetings or detailed minutes, although you should still keep good records and file required annual registrations with the state.

Flexible management and ownership

Members can run the company themselves or appoint managers. The operating agreement can allocate profits and decision-making in ways that do not strictly follow ownership percentages, within the tax rules. This allows customized arrangements among partners.

Simple to start

Forming an LLC usually involves filing articles of organization with the state, paying a fee, and writing an operating agreement. Our formation services can handle this.

Things to consider

• Members who are active in the business are generally subject to self-employment tax on their share of profits, unless the LLC is taxed as an S corporation.
• Rules vary by state, including fees and filing requirements.
• A written operating agreement is important, especially with more than one member, to prevent disputes over money, authority and what happens if someone leaves.
• Lenders may still ask for personal guarantees.

To decide whether an LLC is right for you, contact our office and we will go over the options.