Limited Liability Company LLC Setup and Benefits
If you are worried about being sued, having your personal assets taken, or incurring a large amount of liability, then creating your business as a limited liability company (LLC) is a must for you. It allows the benefits of avoiding the double taxation that a normal corporation would have, along with the protection of personal assets that the corporations have. Basically, it is the best of both worlds. It is actually surprising that more people and businesses do not file as an LLC, since the reporting requirements are not really any greater.
While the general aspects of a limited liability company are basic, you should still be aware of what is required in regards to the qualifications. Setting up the LLC is done at the state level and most states now allow just one person to incorporate as an LLC. This is a huge advantage to the average person and many people that used to be classified as sole proprietors quickly realized the benefits to becoming a LLC. For tax purposes is is considered a pass through company that does not pay taxes itself. The members pay taxes based on their respective earnings.
It is important to note that in cases of fraud or other serious crimes the individual can still be held liable. It is in the ordinary course of business in which the individuals are protected under the corporate shield. This is still a major advantage compared to other forms of business like a sole proprietor or general partnership. The only real disadvantage of a limited liability company is that it can be hard to raise money through capital issues of stocks or bonds. So if you need a large sum of cash to get the business of the ground it could be hard to privately raise the money.
Many people really underestimate the importance of taxation in a company. With large profits comes large tax bills and even little amounts of change in taxes can lead to a huge dollar amount. It is very important to be aware of all the reporting requirements for an LLC and to file the proper paperwork in a timely manner. You do not want to risk losing the LLC because of filing errors.
When in doubt, it is always best to contact a CPA or business person with adequate knowledge in your state that knows about LLC qualifications. Setting up a quality professional with your business should be a long term decision that is based on the quality of the CPA. Do not hire one based solely on cost and make sure they are well respected in the community as well.
In the end it takes many things for a business to succeed. One of those is having the people that look after its financial assets to be safe and soundly manage the funds. Having a CPA or other professional look at the books is always a good practice to have. However, that is no excuse for not having the management be involved as well.