What Is A Limited Liability Company (LLC) And Do I Need One For My Business?
A limited liability company ("LLC") is the combination of what most would agree are the best features of a sole proprietorship, partnership, and corporation. The LLC has become a popular way to structure one’s business because of the personal protection it provides its members from the liabilities and debts of the company; the numerous tax advantages it enjoys; and, the simplified procedures it provides for both the managerial and operational sides of the business.
Personal Liability Protection
One of the best aspects of the LLC is the protection it provides to its members and owners. The LLC is legally separate from its owners and members. This separation ensures that a member or owner cannot be personally liable for any debts and/or liabilities that may result from actions taken by the business.
For example, if a restaurant owner has a customer slip and fall in their establishment, barring extreme circumstances, the business owner and its members will not be personally liable for any damages that may arise in the event of a lawsuit. Without such protection, business owners may find their personal assets; such as, bank accounts, investments, and/or their real property, subject to be seized or garnished by the court in order to satisfy a judgment against the business.
The LLC does not have its own federal tax classification, therefore it can choose to elect the tax status of a sole proprietorship, partnership, S corporation, or C corporation.
Depending on whether the LLC has one or more owners, the Internal Revenue Service will automatically classify the LLC as either a sole proprietorship or partnership. This allows the LLC to enjoy the advantageous tax treatment of pass-through taxation. This pass-through tax treatment allows the owner to apply any income and expenses of the business to their personal tax return. By doing this owners avoid any double taxation stemming from a tax at both the corporate AND individual level.
Management and Operations
The LLC is designed for smaller (less than 100 individuals) and more informally run businesses, because of which the managerial and operational procedures required are less restrictive and more conducive to the day-to-day functions of the business. The LLC is not typically required to hold a large formal annual meeting for all of its members, nor does it require extensive record keeping for such meetings or quorums as is typical in a larger corporate setting where hundreds of shareholders may be involved.
Call To Action
If you are a current business owner or are planning to start a business, it is important to consider any possible liabilities or debts your business may encounter. The cost to establish a LLC is relatively low and can be the perfect option for owner's of a small business.
Before creating a LLC it is encouraged to consult with a qualified attorney to ensure that it is properly formed through the state and that all requirements are met. Once the LLC is established the owner must make sure that the operating agreement is tailored fit the specific needs of the business and is drafted to provide all of the protections and advantages of which it is capable.
If you have any questions regarding the creation of an LLC for yourself or someone you know, please contact the law firm, My Texas Estate Plan, PLLC and we will be happy to assist.
FOR THE FIRM
Casey P. Cook, Esq.