Starting a Limited Liability Company
Are you a business owner? Are you thinking about starting a business? Or, are you forming a business in which you may have investors? If you have answered “Yes” to any of these questions, a Limited Liability Company (LLC) may be the right legal form for you.
The LLC is a relatively new way of doing business in the United States. The LLC combines the best characteristics of corporations, partnerships and sole proprietorships and creates one of the most popular business structures in use today. It is ideal for the business owner who is looking for the limited liability aspects of a corporation and the partnership advantage of pass-through taxation. The LLC is the only business form which offers all the following benefits.
Like the shareholders of a corporation, the owners (called “members”) of an LLC, are not liable for business debts and court judgments obtained against the business. Therefore, under an LLC, creditors cannot pursue your personal assets (i.e. homes or cars) to satisfy business debts.
Like partnerships, LLCs typically, do not pay taxes at the business level. Instead, the LLCs profits and losses are “passed through” to the owners and are reported on the owner’s personal tax returns. Therefore, owners report their share of profits and losses of the LLC on their personal tax returns and no separate tax is assessed on the business itself.
Flexible Management Structure
LLCs have much more management flexibility than corporations. The owners of an LLC are referred to as “members” and act similarly to shareholders of a corporation. LLCs are run by their members unless they elect management by a management election group which may consist of some members and/or nonmembers. However, most small LLCs are usually member-managed where the owners are active participants in the LLC and are integral parts of the decision making process.
If you are forming a business in which you may have investors who will want to be paid back their investment before the owners receive anything, instead of being restricted to dividing up profits proportionate to the percentage of ownership (as in a corporation) an LLC allows owners to decide what share of the profits and losses each owner will receive.
LLCs, unlike corporations, are not required to hold annual meetings and draft meeting minutes. However, an LLC does need an operating agreement that specifies how and by whom the company will be managed, each owners name, the percentage of ownership interest held by each owner, and other rights and responsibilities of the owners and/or managers.
Flexible Distribution of Profits and Losses
An LLC allows you to decide what share of the LLC profits and losses each owner will receive. Unlike the basic legal rule for corporations, LLC owners may divide LLC profits and losses any way desired, rather than being restricted to dividing the profits proportionate to the owner’s capital contributions.
Forming an LLC is similar to forming a corporation. In California, articles of organization must be filed with the secretary of state. Also, LLCs should create a written operating agreement that addresses the rights and responsibilities of the members and/or managers of your LLC. Naturally, before forming a any business entity, you should consult a reputable and experienced attorney.
We here at The Law Offices of Akua Boyenne look forward to answering any and all of your questions and would be happy to assist you in getting your business started right away!