Pros and Cons of LLCs

Pros and Cons of LLCs

There are various ways to structure your business. An LLC, or limited liability corporation/limited liability company, is a type of business some people who obtain a seller’s permit in CA decide to set up.

What Is an LLC?

Although similar to a sole proprietorship or partnership, an LLC is not responsible for paying taxes. Its owners list business profits and losses on personal tax returns, while the company can also tax itself as if it were a corporation. Members/owners of an LLC don’t have personal responsibility for the company’s debts and lawsuits. Structuring your business as an LLC protects your personal assets in case of a lawsuit, so you won’t lose your home if the company experiences financial difficulties.

Why Choose an LLC

As a limited liability company, your business will have the same legal and financial protection as a corporation. It is good for a start-up company because compliance with state/local government and industry regulators isn’t as much of a factor.

Among the greatest LLC advantages is pass-through taxation, meaning the company’s profits are only taxed once. You are taxed only when you report a share of profits on an individual tax return. On the other hand, a C-Corporation is taxed on profits before they’re distributed to owners and when they are reported on individual tax returns. Other perks include:

  • Flexibility in how the LLC is structured and managed.
  • Increased credibility and a more formal business structure.
  • Immediate access to business loans and lines of credit.

Should I Avoid an LLC?

The disadvantages of forming an LLC include:

  • You cannot raise investment funds by issuing shares of stocks.
  • State rules differ regarding the operation of LLCs.
  • You can’t avoid a self-employment tax classification.
  • The LLC must send out K-1 forms before you can complete personal taxes.
  • LLCs have a less-defined structure, making it hard to know who’s in charge.

Steps to Creating/Running an LLC

An LLC can be set up in a single day. First, pick a legal name for the business and submit it, along with your company’s Articles of Incorporation, to the Secretary of State’s office in your state. The name cannot match that of any other LLC in the state, so check your local database of LLC company names first to save time.

Next, an LLC operating agreement must be drafted, which lists the rules and obligations of owners. Then determine who your LLC members are and how many there will be. Once you apply for a business license with the state, you can apply online with the IRS using Form SS-4 to obtain an Employer Identification Number. Your employees and managers will need this when filing their taxes

Steps to Creating/Running an LLC

Obtain Your Seller’s Permit with FastFilings

If you’ve set up an LLC business and are planning to sell tangible goods, FastFilings can help you set up a seller’s permit in CA. Once you provide the necessary information, we file your permit and license request with the California Board of Equalization. Contact us today for assistance with your seller’s permit filing.

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