When starting a business or expanding your company, it is very important to understand the different options that are available for structuring your business. Different business entities are subject to unique tax rules and have their own advantages and disadvantages. 
One option that you may wish to consider is the formation of a limited liability company (LLC). Limited liability companies are a hybrid type of business organization that can provide protection from liability similar to a corporation but that are taxed like partnerships. An experienced San Diego business lawyer at Sepahi Law Group, APC can help you to determine if a limited liability company is the best choice for your business enterprise.
What are Limited Liability Companies?
Limited liability companies blend some of the features of other common types of business organizations. For example:
- Like in a corporation, owners of limited liability companies are not personally responsible for judgments against the company. They are also not personally responsible for debts that the company takes on, unless they co-sign for those debts. Their losses are generally limited to the money invested in the company. This is different from a partnership or sole proprietorship, where the owners are at risk of becoming personally responsible for company judgments and debts.
- Like a partnership, profits and losses “pass through” to the individual owners of the LLC. This means that profits and losses from the company are reported on the personal tax returns of the people who own the business. Limited liability companies are not required to pay federal taxes on business income, since the owners pay those taxes. In some cases, states will tax LLCs so it is important to speak with an attorney about the rules in the location where your LLC will be operating.
- LLCs must file some paperwork, like Articles of Organization. There is typically more paperwork required when forming an LLC than when starting a partnership or sole proprietorship. The startup forms are more similar to the level of paperwork required when starting a corporation.
The owners of an LLC are called members. An LLC can have just one member (in which case it may be treated as a disregarded entity for IRS tax purposes) or the LLC can have multiple owners or members. Individuals, corporations and other LLCs are all allowed to be members in an LLC.
It can be difficult to determine if an LLC is the right choice for your business or not. You should speak with an experienced attorney to discuss the process of forming limited liability companies. You should also consider whether the LLC provides the tax treatment you want, or whether you would prefer to look into the formation of an S-corporation. An S-corporation can allow you more flexibility on how to be taxed on money from the business because you can take some of your profits as distributions, which are not subject to Social Security and Medicare taxes.
Sepahi Law Group, APC has helped many startups and growing companies throughout the San Diego area to form limited liability companies as well as other kinds of business organizations. Call today to speak with an experienced business lawyer to learn more about how we can assist you.