Limited Liability Company
A limited liability company (LLC) is a relative newcomer to the field of business entities. They began popping up in the late 1970's and early 1980's. They were designed as a hybrid entity, with the tax advantages of a partnership and the limited liability of a corporation.
Owners of a LLC are known as “members” and are usually the ones who manage the business, unless the members decide to have the business run by a manager. Setup and organization of the LLC structure is generally easier and more flexible than for a corporation. By default, a single member LLC is disregarded for tax purposes, and a multi-member LLC is taxed as a partnership. However, a LLC may elect to be taxed as a corporation. (LLC formation is not available for many types of business professionals, such as doctors and lawyers.)
Benefits of a LLC include:
- Limited liability of each member to his or her investment in the company
- The ability to avoid double taxation by allowing profits and losses to “flow through” to its members, unless the LLC elects to be taxed as a corporation
- Flexibility regarding how to share profits and losses between members
- Flexible management options
- Fewer formalities to maintain than with a corporation
- Owners of a LLC can be individuals, business entities, or any combination thereof
- LLCs are popular entities to form for real estate investing for purposes of asset protection
Disadvantages of a LLC include difficulty raising investment capital, as a LLC does not issue stock like a corporation. Additionally, the law related to LLCs is less settled than that for corporations, leaving more room for uncertainty.
To form a LLC, you must file “articles of organization” with the California Secretary of State. An operating agreement is also required for your LLC. Although not required to be in writing, it is highly advisable that you do so to avoid disagreements down the road.
Contact Helix Law Firm for help with limited liability company formation
If you're planning to start a business or thinking of forming a LLC for your existing business, Helix Law Firm can help. We can determine if a LLC is right for your business, draft all necessary documents, get you up and running, and provide continuing legal support for your business.