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LLC (LIMITED LIABILITY COMPANY)

• Advantages of a Limited Liability Company

   

  Limitied Liability Company’s, more commonly referred to as a LLC, have been the most commonly held business structure in Europe and Latin America for a long time. They began to gain a foothold in the United Stated in the late 1970s. LLC’s are often recommended by attorneys, tax professionals and other small busienss owners because of their corporate liability protection in comparison to other small business entities. Advantages include the protection of personal assets from business debt you may face or from your other partners. Organizational structures are available in many different formats for LLC ownes and there are no ownership restrictions. Profits and losses do pass through to personal income tax returns for the owners ever since the late 1980s when pass-through taxation methods were put in place by the IRS in 1988.

• Disadvantages of a Limited Liability Company

   

  Limited Liability Company’s are known to have the shortest life spans because they are the most common business entity for members to leave which may lead to its dissolution. Members can either keep the LLC or decide to dissolve; depending on your operating agreement, there may or may not be exclusions to when you can or cannot close a LLC depending on when the first business owner leaves or does not. LLC maybes are double-taxed by the business and personally which is seen by many as a disadvantage. Additionally, members of an LLC are known to be self-employed by the IRS which means they must pay self-employment taxes like Medicare and Social Security at the same time their net income is taxed annually as a LLC.

• Forming a Limited Liability Company

   

  Owners of a LLC are usually referred to as members. Every LLC must have an operating agreement breaking down structure, finances and organization as well as a business name, articles or organization and licenses and permits. A Limited Liability Company is a form of partnership.

• S Corporation combined with a LLC

   

  The possibility of combining an S Corporation with a Limited Liability is one discuessed by many business owners and one best discussed with your attorney. Form 2253 is the appropriate tax form when this occurs, the same used for a S corporation. This allows the business to be conisdered for the tax benefits of a S corporation with the protection of the individual business owners of a LLC.

 

 

These are the most common forms of businesses formed although there are other forms of business entities exist. Some of the lesser common business entities are as follows:

A Limited Partnership is made up of one or more general partners in addition to one or more limited partners. The benefit for the general partners is that they get to manage the business while also benefiting entirely from the profits and losses of the business. Limited partners also share in the profits of the business, but they do not have to face the negative aspect of the losses to the extent beyond the investment they made into the business; additionally, they are not usually involved in day-to-day business operations.

A Limited Liability Parternship is similar to a General Partnership. The only difference is that usually there is no personal liability for one partner for the negligence of another partner.

A General Partnership is formed between two or more partners who make an agreement to contribute skill, lobor or money to business. The partners share the profits, losses and entire management of the business. There is usually a written partnership agreement where the partnerships are equally liable for debts and losses of the business.

A Joint Venture is formed for a specific amount of time in order for a business transaction to take place.

A Municipality is a public corporation that is put together to serve as a subdivision for state or local governmental purposes.

A Franchise is another common business entity. A franchise business comes about when the owners of a business, or the “franchisers”, sell the rights of their business to third party operators. This most commonly happens when outside third parties see potential in a store, restaurant, car or retail model and decide to invest in this business to make a profit by themselves by opening their own storefronts with the same logo, name and business model operating out of a different location than the original business. Franchisees who invest in businesses have to pay an initial fee for the rights to the business, training and equipment. Once they begin operating, the franchisee usually pays the franchiser a royalty payment yearly or more often that is comparable to the franchise operation’s gross sales. Franchiser typically requires that the business model for the original business does stay the same including uniforms, business methods, signs logos and so forth. The pricing model typically remains the same and franchise attorneys can usually help you more in detail with the investment you are making once you become a franchisee.