The Limited Liability Company: Right For Your Business?

One of the first decisions an entrepreneur has to make is how to structure the business she wants to form, and the LLC is often proposed as a simple, low-cost, and flexible solution. But is it right for your business? To help understand how the LLC will work for you, a look at key considerations from lawyers and law firms on JD Supra:

On cost…

“Single member LLCs are inexpensive to form… If it is a single member LLC, you don’t even need an LLC agreement (although you can easily and inexpensively put one together if you like).” (From Choice of Entity: Is An LLC OK? by Davis Wright Tremaine LLP)

On taxes…

“The Internal Revenue Service …  ignore[s] the LLC for tax purposes, so they treat your business just like a sole proprietorship. Your business revenues and expenses are reported on Schedule C of your personal tax return, so a separate business tax return is not required.” (From Incorporating Your Start-Up Business by Stephen Minnich)

On flexibility…

“An LLC tends to be more flexible than a corporation from both a legal and tax perspective. The LLC combines the limited liability protection of the corporation with the flexibility and tax advantages of the partnership.” (From Which Business Form is Right for me? By Eric Sigman)

On reporting requirements…

“The Statement of Information is a form to update the Secretary of State and the public on where you are located, your agent for service, and other basic information. Although an LLC does not require minutes, you must still file a version of the statement of information biannually with the Secretary of State in the state where your company was incorporated.” (From How Should You Incorporate? 5 Factors to Consider by Ropers, Majeski, Kohn & Bentley)

On investors…

“For LLCs with multiple members, the LLC is treated as a partnership… Investors frequently don’t want to complicate their personal tax situation by becoming a member in an entity taxed as a partnership and then receiving Forms K-1 and being taxed on the entity’s income even if no cash is distributed to them to pay the taxes.” (From 12 Reasons for A Startup Not To Be An LLC by Davis Wright Tremaine LLP)

On multi-state business…

“While the governance of the LLC may be subject only to the laws of its incorporation, externally the LLC is subject to the laws of each of the state it conducts its business. For example, a Nevada LLC doing business in California will be required to register with the Secretary of State and comply with California laws…” (From Where should you incorporate your LLC? by Ropers, Majeski, Kohn & Bentley)

On the state of incorporation…

“The three major substantive selling points that are used to promote Wyoming LLCs are: (1) superior asset protection, (2) lower taxes, and (3) lower fees… [I]t is highly unlikely that a business owner would actually realize any of these benefits if they were to organize their business as a Wyoming LLC.” (From Should new business owners set up their business as a Wyoming LLC? by Law Office of Alexander J. Davie)

“Nevada law provides that the sole remedy available to creditors of owners of Nevada closely held corporations and LLCs is a charging order … [but] the charging order limitation is not unique to Nevada.” (From Should new business owners incorporate in Nevada? by Law Office of Alexander J. Davie)

“There are little to no tangible or financial benefits for a small business to incorporate in Delaware…” (From Should new business owners incorporate in Delaware? by Law Office of Alexander J. Davie)

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