What is an LLC?

A Limited Liability Company is a business structure that creates a separate entity for your business. So, the company is entirely independent of you. With this structure, the members of the company do not hold any personal responsibility for business liabilities or debts. So, if something catastrophic happens to the company, you don’t have to worry about losing personal assets or going through bankruptcy. Even if the business is going through a legal battle, the LLC provides a layer of protection so members’ assets can’t be seized to pay the debt obligations.

How an LLC Works

An LLC is similar to the process of having a corporation. The main difference between an LLC and a corporation is that individual owners are taxed separately from the corporation. On the other hand, LLCs have money flowing from the business to the individuals, which means you pay personal income tax rates on profits instead of corporate income tax rates. Using this approach is beneficial to reduce the tax burden due to double taxation. An LLC is set up with an ownership/management structure. When you are using an ownership structure, you are a “member” of the LLC. Members handle the business’s daily operations and are the decision-makers in the company.

Why Should You Set Up an LLC?

There are many different business structures to choose from, which is why it’s wise to talk to an attorney to decide on the proper structure for your business activities. Here are a few benefits you can expect if you decide that an LLC is the right structure for your needs:

  • Liability protection for the business owners
  • Avoids many of the corporation requirements
  • Personal assets are protected if there are lawsuits or business debts
  • You can set up an unlimited number of members
  • An allocation of profits helps with specific accounting and taxation strategies

If you’re just starting out or you’re considering restructuring your business, California Business Formations is here to help. Give us a call and let’s discuss your future plans and whether or not an LLC is the right business formation for you.

Need Assistance?

We understand that incorporating your business in California may seem overwhelming at this point.  Schedule a business strategy session with our team of legal experts and we’ll help you get it done efficiently and effectively!

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