California is a high risk, high reward state for businesses. The market is potentially very profitable, but the risk of being sued for something is also high. An LLC may be the answer to the risk factor. To the surprise of many, the LLC has not been around for all that long. The first one was created in the late 1970s in Wyoming of all places. California is a notoriously bad place to do business given the taxes, fees and regulations. The state is also slow to acknowledge new business developments. In fact, it didn’t start allowing LLCs until the early 1990s. An LLC is unique because it combines the best of other entities while also avoiding the worst. For many small businesses, this makes it an excellent choice of entity. No business owner wants to be exposed to losing personal assets if their business is sued. A limited liability company avoids this problem by protecting the business owner from personal liability for business debts. Taxes are the next thing any business should focus on. Corporations can be difficult because they are double taxed. A LLC, however, is taxed like a partnership. The finances pass through to your personal return. If you can choose to have a limited liability company taxed like a partnership, why not just use a partnership? The problem is liability. The partnership provides no protection. The limited liability company does, which makes it superior. All is not perfect with an LLC however. It may sound like it, but there are a couple of situations that can be problematic. Many businesses are started with the idea of going public. If this is your goal, an LLC is a bad choice. Simply put, you cannot take it public. The LLC does not have shares, so there is nothing to trade! Taxes are a complicated subject as well. Although you can choose to have your limited liability company taxed like a partnership, this is only true if there are two or more owners. Single owners get taxed like the self-employed, which offers no tax benefits. The LLC can be problematic in another way. Because it requires little paperwork or administration, owners can fail to keep up with even the minimum requirements. This can be dangerous if anyone every challenges the validity of the entity. The best entity choice for your business is highly dependent upon what you will be doing. The LLC is often the best choice for many, particularly in California, but make sure to get professional advice on the issue.
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California is a high risk, high reward state for businesses. The market is potentially very profitable, but the risk of being sued for something is also high. An LLC may be the answer to the risk factor.
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