December 20

Should I Form an LLC?

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Why You Might Love the LLC Structure for Your New Business

A limited liability company, or “LLC,” is a combination of a corporation and a partnership. It has the legal benefits of a corporation, but can be owned by one or more individuals—similar to a partnership.

A major benefit of the LLC lies in its name: limited liability company (LLC).

If you’re an owner of an LLC (a “member”) you won’t be held personally liable for the debts or other legal obligations of your company.

If your business is sued, you won’t risk your personal assets in the suit. Creditors can’t go after your individual resources to pay your business’s debts.

By reducing your financial risk, your mental/emotional well-being is protected as well.

LLC = greater peace of mind for you

(**Note: it is possible for an LLC to lose its limited liability, a.k.a. “piercing the veil.” More on preventing that below.)

The Pros – Why the LLC Structure Is A Great Choice

  • Easy Formation. An LLC is normally much easier to form than a corporation. Here’s an example of a typical, simple process for forming an LLC.
    • Choose the state in which you want to form your business.
    • Choose a name for your LLC.
    • Choose a registered agent. (Also known as an agent for service of process)
      • The agent receives correspondence for your business and makes sure you see important, time-sensitive documents promptly.
      • This helps you avoid the consequences of missing critical documents and deadlines.
    • Register your business with the correct department in the state where you’ll be doing business, and pay your filing fee.
    • Create your business’s operating agreement
      • This document is the backbone of your business and sets out how you’ll run your LLC.
      • Having an operating agreement (and being able to prove that you’ve been following it) can protect your company’s limited liability status and prevent the possibility of “piercing the veil.”
      • If you don’t have an operating agreement, your state’s default laws for LLC’s will apply to your business.

        You’ll deal with your state government to create and maintain your LLC. Since different states have different requirements, the specifics of the formation process will vary.
    • Flexible Membership & Management Structure
      The members of an LLC can be individual people, partnerships, trusts, or corporations. There’s no limit to the number of members.

      The rules you set out in your LLC’s operating agreement regarding membership and management will legally override state regulations in most cases.

      Because of this freedom and flexibility, it’s easy for your company to adapt and change as it grows.
    • Pass-Through Taxation
      LLCs have a strong tax advantage compared to corporations, whose profits are often taxed at both individual and corporate levels. Instead, an LLC is considered a “pass-through” entity.

      Your LLC’s profits and losses will “pass through” to you and other members. You’ll account for them on your individual tax returns.

      You won’t pay an LLC or corporate tax like a corporation would.
  • Other Bonuses:
    • Fewer Compliance Requirements Compared to corporations, LLCs have fewer compliance requirements and ongoing formalities.
    • Easier Record Keeping LLCs generally require less paperwork than corporate business entities.
    • Enhanced Credibility The letters “LLC” after your business name can boost your credibility and professionalism in the eyes of your customers.

The Cons – Why You Might Decide Against Forming as an LLC

  • Cost
    LLC’s usually cost more to form and maintain than sole proprietorships or general partnerships. There are initial formation fees in addition to recurring fees imposed by many states.
  • Transferable Ownership
    LLC ownership transfers tend to be more difficult than with corporations.

    Corporation shareholders can often simply sell their shares to someone else.

    In LLCs, all members must approve adding new members or altering the ownership percentages of existing members. (unless they’ve agreed otherwise)

So, What Do You Think?

Is an LLC the right business type for you?

With all its flexibility and simplified compliance rules, the LLC structure could be the perfect foundation for your unique business.

We’ve given you a very broad, general look at the benefits and costs of being an LLC.

If you want to make sure an LLC is your best choice, please contact our office at McQuillan & Hohman Law for your consultation with our expert staff.


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