Is an LLC the right entity for my new business?

Perhaps the most important decision you'll make when starting your business is what type of business entity you will choose. The most common business entities are a sole proprietorship, partnership, limited liability company, and corporation. The most popular business entity for limiting ownership liability is the limited liability company.

Limited Liability Company

A limited liability company (LLC) may be owned by one or more "persons" (individuals or corporations) known as "members" of the LLC. An LLC may be managed by the members or by an outside manager. 

An LLC is a hybrid entity, having characteristics of both a corporation and a partnership. Essentially, the LLC combines the best of both worlds -- providing for limited liability of all of its members, while retaining the flexibility of the partnership form.

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Pros

  • Not required to hold annual meetings or comply with the many operational restrictions imposed upon corporations.
  • Provides limited liability to all of the members. 
  • Unlike a limited partnership, a member of an LLC will not lose the protection of limited liability by participating in the management of the LLC.
  • For tax purposes income is only taxed once, i.e., earnings of the LLC are treated as the earnings of its members and thus no separate tax is imposed on the LLC.

Cons

  • Must file a certificate of organization with the state.
  • Must enter into an operating agreement.
  • Must file an annual renewal with the state.

Summary

An LLC is the preferred business entity for those wanting to limit their personal liability while also maintaining control of the management of their business. Although an LLC requires more formalities than a sole proprietorship or general partnership, it will likely be worth it if your business runs any risk of personal liability. 

If you have any questions regarding your new business, or would like assistance forming your LLC, schedule a free consultation with J.Cutler Law.