Choosing An Llc In California

If you are thinking of starting a business in California, it makes sense to protect yourself with a business entity. With over 100,000 lawyers in the state, it may be the smartest move you ever make.

Of all places, Wyoming was the first state to come up with the idea of the limited liability company. Despite Wyoming instituting the entity in the late 1970s, many other states took a lot of time before following suit.

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.

A limited liability company is much like Frankenstein, but in a good way. It takes the best elements of other entities and ties them together in a way that simply works.

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.

All is not perfect with an LLC however. It may sound like it, but there are a couple of situations that can be problematic.

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!

Another potential problem has to do with taxes for a certain type of LLC. Many states allow a single owner LLC. The IRS requires that such entities have the owner file as a sole-proprietor, which means there is no real tax advantage.

The LLC can be problematic in another way. Because it requires little paperwork or administration, owners can fail to keep up with even the minimum requirements. This can be dangerous if anyone every challenges the validity of the entity.

The best entity choice for your business is highly dependent upon what you will be doing. The LLC is often the best choice for many, particularly in California, but make sure to get professional advice on the issue.

Article Source: http://www.articlemonk.com

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