If you have a business – you should consider setting it up within an LLC. It will provide you with similar legal protections to a corporation, but enable you to run your company as a small business.
A brief definition:
A Limited Liability Company (LLC) is a hybrid organization that has characteristics of both a corporation and a partnership. Its members (comparable to corporate shareholders) receive interests in the LLC in exchange for property, money, or services. Like a corporation, owners receive liability protection. Because of its hybrid structure, an LLC can be a good alternative to those who operate a sole proprietorship or a partnership and need to have more protection from individual liability for debts or lawsuits.
Why form an LLC instead of a corporation?
Less Paperwork and Procedures.
Running a business is time-consuming. That is one of the key reason for why the LLC was formed – which happened during the 1970s – to make the process less onerous. Keep in mind that for most states you just need to pay a fee, file the articles of organization, and perhaps make annual filings.
Now this does not mean you should run your LLC with minimal effort. It is advisable to put together an Operating Agreement (especially if you have partners). This sets forth the governance of the LLC, such as with voting, allocation of profits/losses, compensation, authorizations and so on. An Operating Agreement can be an effective way to allow for stronger management.
No entity is perfect. And yes, the LLC is not ideal for all businesses. Actually, one of the biggest disadvantages is that it is not particularly good for raising money, especially from Venture Capitals. It is tough to structure protections in stock (such as priorities with dividends and liquidations), the governance tends to be too flexible (there is no board of directors), and even the pass-through tax feature can be a problem (the reason is that Venture Capitals may have tax-exempt investors). So, if you intend on raising substantial amounts of money, you should probably look at the C-Corp structure instead. For the most part, the LLC will likely just make things too complicated and may even scare away potential investors.
Remember, establishing the right structure for you and your business is a highly complicated topic and it is a good idea to seek the advice and help of a qualified Attorney.
For a free initial consultation, please contact JV LAW GROUP at 714-752-3270 or via email info@jvlawgroup.com
