California is a high risk, high reward state for businesses. The market is potentially very profitable, but the risk of being sued for something is also high. An LLC may be the answer to the risk factor.

To the surprise of many, the LLC has not been around for all that long. The first one was created in the late 1970s in Wyoming of all ples.

California was extremely slow to do so, only allowing the entity in the early 90s. Once it became apparent the entity was very popular, the state government expanded its use.

So, what exactly is a limited liability company? It is a business entity thought up in a politician’s mind. The goal was to ease the burden on small businesses, and it does just that.

Few small businesses can withstand being sued, particularly if your personal assets are at stake. The LLC was designed to prevent losing your personal assets by providing the same liability protection found with a corporation.

No business owner wants to be double taxed as can often happen with a corporation. The LLC resolves this by borrowing the tax classification of a partnership, to wit, finances are passed through to the owners.

If you can choose to have a limited liability company taxed like a partnership, why not just use a partnership? The problem is liability. The partnership provides no protection. The limited liability company does, which makes it superior.

At this point, you might think the LLC is the obvious choice if you are going to start a business. It often is, but there are a few exceptions. Here are two that come to mind.

The great American business dream is to go public like Google and make billions. Well, that is not going to happen with an LLC. It has no shares, so you can’t go public! You need to be a corp, instead.

Taxes are a complicated subject as well. Although you can choose to have your limited liability company taxed like a partnership, this is only true if there are two or more owners. Single owners get taxed like the self-employed, which offers no tax benefits.

Whether a corporation or an LLC, you must run the entity as a business to gain the asset protection. Many LLCs, however, are run sloppily because the requirements are so informal the owners just get lazy. This can result in the LLC being pierced in a lawsuit, a disaster.

The best entity choice for your business is highly dependent upon what you will be doing. The LLC is often the best choice for many, particularly in California, but make sure to get professional advice on the issue.

Article Source: http://www.articlegoldmine.com

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