Limited Liability Company (LLC)

Limited Liability Companies are very popular in the State of California and have a blended benefit for those seeking to be taxed like a sole proprietorship or partnership and have similar liability protection like a corporation.

Advantages

  • Avoids some S Corporation Restrictions
  • Avoids double taxation on profits
  • No shareholder/quarterly meetings
  • Can be owned by an individual
  • Fairly easy to set up

An existing partnership can generally elect/change their partnership into an Limited Liability Company if they follow the proper steps to be recognized as a new entity. If they do not, the partnership would have to dissolved then create a Limited Liability Company. This usually means more time, headaches and money spent to change business structures.

There is a great deal of information that you must go over with your accountant and lawyer regarding a LLC. If you are heavily developing technology or have any intellectual property, you should consult a lawyer to make sure you are setting up your business entity to transfer your work correctly to your company.

Disadvantages

  • Sharing of profits (by percentage of ownership)
  • Disagreements and control issues (again it is based on percentages not shares)
  • Differs from State to State

Be sure to speak with an accountant to discuss the correct ways to settle taxes and file your income because an Limited Liability Company is a pass-through entity. This means that your tax obligations will pass through from the company to you on your personal tax return.

As always, I am not a tax professional or attorney (nor do I want to be one :D ). Please consult professional guidance when dealing with critical areas of your business.