Limited Liability Companies are very popular in the State of California and have a blended benefit for those seeking to be taxed like a sole proprietorship or partnership and have similar liability protection like a corporation.
- Avoids some S Corporation Restrictions
- Avoids double taxation on profits
- No shareholder/quarterly meetings
- Can be owned by an individual
- Fairly easy to set up
An existing partnership can generally elect/change their partnership into an Limited Liability Company if they follow the proper steps to be recognized as a new entity. If they do not, the partnership would have to dissolved then create a Limited Liability Company. This usually means more time, headaches and money spent to change business structures.
There is a great deal of information that you must go over with your accountant and lawyer regarding a LLC. If you are heavily developing technology or have any intellectual property, you should consult a lawyer to make sure you are setting up your business entity to transfer your work correctly to your company.
- Sharing of profits (by percentage of ownership)
- Disagreements and control issues (again it is based on percentages not shares)
- Differs from State to State
Be sure to speak with an accountant to discuss the correct ways to settle taxes and file your income because an Limited Liability Company is a pass-through entity. This means that your tax obligations will pass through from the company to you on your personal tax return.
As always, I am not a tax professional or attorney (nor do I want to be one :D). Please consult professional guidance when dealing with critical areas of your business.