What is an LLC?
LLC stands for limited liability company, which means its members are not personally liable for the company’s debts. A limited liability company (LLC) is a business structure in the U.S. that protects its owners from personal responsibility for its debts or liabilities. This means if an entity or an individual takes legal action against the LLC, the recovered damages are paid out from the LLC’s assets and not derived from the assets of any of the members.
LLCs are taxed on a “pass-through” basis, which means all profits and losses from the business pass through each member’s personal tax return. A pass through entity essentially means that the LLC’s profits and losses are passed through to the owner’s personal tax returns. Nakase Wade’s LLC attorneys have at least fifteen years of experience with LLC formation and advising in California.
LLC Laws in California
Starting an LLC in California requires the completion of formal tasks, from filing documents to opening accounts. However, if you are contemplating starting up your own LLC, you will be pleased to know that there are fewer formalities involved in running an LLC than with a corporation. California laws do not require annual meetings, for example, though most LLCs still hold them.
Although you do not need an attorney to form an LLC in California does not mean hiring a lawyer would not be beneficial in other ways. Our LLC attorneys have seen new businesses that, through no fault of their own, forget to hold meetings or forget to check the boxes of other formalities that are normally associated with corporations. The unfortunate truth is that a corporation can lose its status as a lawful, legal business if the entity does not follow corporate guidelines. In other states, LLCs have even lost their liability protection.
However, California is a state that relaxes some of these guidelines in hopes that its businesses flourish. Under California law, LLCs can forego meetings that run annually. No risk, no foul, right? Additionally, single member LLC in California can allocate their voting rights and things like income, which can be useful. Sounds like a partnership, correct? Well, in some ways, LLCs take the best aspects of partnerships and top aspects of corporations; and combine them.
This is an aspect of the flexibility we were talking about. On the flip side, S Corps hold their members to more strict requirements in terms of stock, officer election, and foreign ownership, among other things. If you have questions about liability, contact an LLC lawyer. Starting an LLC can be completed online by the entrepreneur, but it is beneficial to have an LLC attorney’s assistance throughout the formation process to ensure protection from personal liability.
Taxing an LLC
At this point, you may be wondering how running an LLC can impact your tax structure and the taxes you may pay. LLCs, feature flow-through taxation. What is flow-through taxation, and how is it different than double taxation? California FTB and IRS have different taxation for LLC – limited liability company. An experienced California LLC attorney can assist LLC business owners with tax obligations and keeping their LLC running legally.
Pass or flow-through taxation simply means that whatever profits you make or losses you sustain through your LLC then “flow” to the members of your LLC. At this point, the members document and report these profits or sustained losses as their personal incomes on their respective tax returns.
On the other hand, when a corporation features double taxation, their profits will be taxed on the level of the corporation and again as the shareholders collect dividends or profits.
We know that this whole California LLC business sounds beneficial, but there are always disadvantages that you must weigh, correct? Here is one of those disadvantages under California law: plus the sum of your personal taxation, your LLC will be exposed to California’s receipts tax; in gross. The fine print here is that this creates an additional payment that you will need to make, which will be calculated based on your LLC’s gross revenues.
In California, your LLC’s gross tax on your receipts depends on your revenues, as opposed to your profits, and this is figured out based on a variable scale. What does this all mean? Well, businesses with smaller margins of profit that do high volume may not want to choose the LLC structure, after all. If you would like some help in figuring out if an LLC is right for you, get in touch with our Business Lawyers & Corporate Lawyers in California. Our aim in this article is to provide all the pertinent information so that you can make the right call for your business aims now and your career. It is not required by the law to hire a lawyer when registering as an LLC. However, many times, it helps to speak with an experienced LLC lawyer about your tax structure to make sure you are paying all of your dues correctly.
Forming your LLC
If you are interested in forming an LLC, you should contact a corporate lawyer. If and when you decide that an LLC will be your next business step, you will file the correct forms and articles with the proper state government offices. Usually, this will be in the form of what is known as a “Certificate of Incorporation,” otherwise known as a “Corporate Charter.” You will also need to appoint an agent who is registered on your company’s behalf. This agent will be the recipient of any legal action against you, and they need to have a physical address included in the application. Additionally, you will probably want to file what is called the Operating Agreement of the LLC, which will map out all the guidelines and rules that will govern your business. An LLC lawyer can help you with the finer points of these documents.
Note: Your agent cannot accept legal correspondence at a P.O. Box.
To go over these requirements fully, an LLC lawyer can assist you. At Nakase Wade, our LLC attorney in Los Angeles are experienced, well-informed, and ready to assist you in these important matters.
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Brad N2024-04-26 22:50:412024-04-26 22:50:42How To Write An LLC Article of Organization
