To the surprise of many, the LLC has not been around for all that long. The first one was created in the late 1970s in Wyoming of all places.
California is a notoriously bad place to do business given the taxes, fees and regulations. The state is also slow to acknowledge new business developments. In fact, it didn't start allowing LLCs until the early 1990s.
So, what exactly is a limited liability company? It is a business entity thought up in a politician's mind. The goal was to ease the burden on small businesses, and it does just that.
No business owner wants to be exposed to losing personal assets if their business is sued. A limited liability company avoids this problem by protecting the business owner from personal liability for business debts.
Taxes are the next thing any business should focus on. Corporations can be difficult because they are double taxed. A LLC, however, is taxed like a partnership. The finances pass through to your personal return.
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.
At this point, you might think the LLC is the obvious choice if you are going to start a business. It often is, but there are a few exceptions. Here are two that come to mind.
The great American business dream is to go public like Google and make billions. Well, that is not going to happen with an LLC. It has no shares, so you can't go public! You need to be a corp, instead.
Taxes are a killer from both a personal and business point of view. Certain LLCs can lose the benefit of being taxed as a partnership. A single owner LLC is taxed like a sole proprietor by the IRS, canceling out any tax benefits.
Another danger with the LLC is the lack of formality. This can be a good thing, but it can also lead to laziness and sloppiness by owners. You must practice good business administration to avoid this problem.
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.
