By: Esqueda Law PLLC
The legal structure of your business can take several different forms. It may fall under the category of sole proprietorships, partnerships, corporations, and LLCs. These entities differ in Ownership and Management, Taxation and Liabilities, and Regulations and Paperwork. Among the various types of entities, a Limited Liability Company (LLC) is a business structure that combines features of sole proprietorship and corporations. It combines the best features of both entities to allow you to run your business like a corporation, but without personal liability.
Features of an LLC
Ownership and Management
An LLC can be owned by an individual or a group of individuals who document and file articles of organization with the state. It is not dependent on the financial contribution of the individual or the distribution of shares to shareholders, as may apply in corporations. The management of LLCs is also much more flexible. It is not necessary to have a formal board of directors and corporate officers. Ownership is not passed on or inherited. Therefore, if there is no agreement on the continuation of the business, in the event of death or bankruptcy of an owner, the business dies also.
Taxation and Liability
The LLC, in itself, does not pay taxes. It has three options in the way taxes are filed: C-Corp(as a regular corporation) S-Corp (under sub-chapter S of the tax-code, B-Corp (a company with a social or environmental agenda). The most commonly chosen is the S-corp. Taxes are “passed through” to the owners or members of the business, and this shows up on the personal income statement. This has the benefit of one-time taxation, unlike some corporations which endure double taxation. While taxes are paid on the personal income statement, as the business owner of the company you are not liable for debts and financial obligations. The finances of the business are regarded as separate from the individual. This is often referred to as personal asset protection.
Regulations and Paperwork
These vary from state to state. However, the paperwork required for an LLC is much less than for a corporation. LLCs require three main documents: Articles of Organization, Employee Identification, and an Operating Agreement. There are also fewer requirements for filing annual reports. Annual elections and records of minutes at meetings are optional. Additionally, some states make it mandatory to have a resident agent. This person is tasked with receiving legal documents for the LLC. (You can learn more about the need for Resident Agents here: What is a Resident Agent and Do You Need One?)
Deciding on the right business structure is a serious decision that you do not need to make alone. If you believe an LLC is the right choice for you, or you are considering other legal structures for your business, it is a good idea to seek advice. My name is Liza Ann Esqueda and I specialize in this field.
Need to strategize? Schedule a free constellation TODAY. Book a free 15-minute call: HERE Liza Ann Esqueda is a trademark & small business attorney specializing in trademarks, copyrights, and contract templates. Liza Ann runs a virtual attorney, serving clients nationwide. Visit: LawyerLizaAnn.com for business tips, free downloads, and course information.