By: Barry E. Haimo, Esq.
December 15, 2016
Why Form a Limited Liability Company?
One of the most important decisions to make when forming a new business is the kind of business you want to form. Each structure has different pros and cons concerning liability, tax, and regulations that will have a big impact on how your business runs and affects your overall estate.
One business structure that appeals to many is a limited liability company (LLC). This is an incorporated structure that allows for more freedom and looser regulations and more flexibility as a result.
There are restrictions on the types of businesses that can be LLCs (for example, financial institutions are typically barred from forming an LLC, and in different states, architects, engineers, and chiropractors are also prohibited from forming an LLC). Before you move forward, talk to a Florida business planning attorney to see if your business qualifies.
Once you know that your business is eligible for LLC status, consider additional factors that may make the LLC structure more or less appropriate for your business. If any of the following apply to your current situation and the plans you have for your business, a LLC may be the structure for you:
You Are Concerned about Lawsuits and Losing Your Assets.
If you are forming a business that could face a lawsuit (i.e. storefront businesses can potentially face premise liability lawsuits), you may be interested in incorporating your business. One of the most tempting advantages of any corporation, including an LLC, is the personal protection you receive from lawsuits. While there are exceptions, if your business is sued, creditors will not have the ability to take your personal assets. Simply put, LLCs keep your personal and business assets separate.
You Don’t Want to Be Taxed Like A Corporation.
LLCs enjoy the best of both worlds. You are personally protected like a corporation, but enjoy the benefits of pass-through taxation. Profits and losses can pass through the LLC and are reported on owners’ personal tax returns.
This tax structure is often referred to as a disregarded entities. However, LLCs can also elect to be taxed like partnerships, corporations, or s-corporations if one of these structures is more beneficial for your business.
You Want Flexibility In the Structure of the Deal With Partners.
S-corporations require making distributions and allocations of profits and losses pro rata among shareholders. LLCs do not. In an LLC, you may negotiate to reallocate these in a manner contrary to pro rata, which can become especially in creative deal-making.
You’re Not a U.S. Citizen.
If you are not an American citizen or a permanent resident of the United States, your business options are limited. You cannot form an s-corporation, for example. You can however, form both LLCs and c-corporations, among others.
Management by Shareholders.
LLCs in Florida can be managed in one of two ways: by a manager who may or may not be a shareholder (or member). In addition, the shareholders (members) themselves may manage the business; a very distinct management structure than the centralized management of a corporation.
Should you form a limited liability company? That depends on you and your business. If you are still debating which structure is most appropriate for your new venture, call a Florida business planning attorney.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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