With all of the choices and decisions you need to make when starting a new business, you could feel overwhelmed. Choosing a business structure may be at the top of your list since that structure will dictate numerous factors, situations and aspects of your company.
As a small business, others may be encouraging you to structure your business as a limited liability company, but no one can tell you exactly why. In order to make an informed decision, you need to know more about it, along with more about what it does for you and your business.
The main characteristics of an LLC
LLCs are distinguished from other entities through the following characteristics:
- Has members
- Members can be corporations, other LLCs or individuals
- Combines characteristics of partnerships and corporations
Even though an LLC takes features from both of those entities, it isn't classified as either.
What an LLC does for your business
The benefits of an LLC are many and seem to work well for smaller businesses. Some of those advantages include the following:
- Only members taxed, not company, avoiding double taxation
- Limited liability to members
- No formal minutes or meetings
- Distributions are flexible
As you can see, LLCs allow for less paperwork than corporations while providing similar protections from personal liability — unless you sign a personal guarantee for a debt.
Every entity has a downside, including an LLC
Every structure has disadvantages, and an LLC is no exception. You just have to determine whether you can live with the following downsides to this entity:
- More paperwork than a sole proprietorship
- Bankruptcy or death of a member terminates the LLC
- Can't go public
Creating your LLC
If you decide that an LLC will work best for your business, you will need to file articles of organization and create an operating agreement. You could attempt to handle these documents on your own, but without the appropriate legal knowledge, you could make a costly mistake.
A California business formation attorney could provide you with guidance and assistance to help ensure that your LLC is properly formed in accordance with state laws. Furthermore, he or she can help you create an operating agreement that provides you with a blueprint for the future of your business and clearly defines each member's role and outlines a procedure for making any changes to the LLC.