4 Reasons Why Forming an LLC is the Right Decision

4 Reasons Why Forming an LLC is the Right Decision

There are many advantages of incorporating a business in California, each business form hold different advantages and disadvantages.

Benefits of Incorporating a Business

While, there are many benefits of incorporating a business, choosing to register your business under the form of a Limited Liability Company, or “LLC” is one of the more common and better choices. Here are four (4) reasons why forming an LLC in California is the best decision:

1. Flexible Management Structure

An LLC can be organized in various ways. The beauty of an LLC is that the structure of the firm is virtually entirely up to founders’ imagination! This is in stark contrast to the rigid, formal structure of a corporation.

2. No Mandatory Rules

Unlike a corporation, which mandates board meetings and shareholder votes along with other burdensome default rules, an LLC has virtually no mandatory rules. Rather, the statutes in your jurisdiction will provide default rules which can be contracted around in the Operating Agreement.

3. Limited Liability

An LLC has even more limited liability than a corporation or limited liability partnership! The founders can execute an Operating Agreement that vacates most of their fiduciary responsibility. This is extremely important as it shields owners from being personally financially responsible for the liabilities of the LLC should things go wrong.  This means that creditors cannot go after the personal assets of the owners to pay business debts.

4. Flow-Through Taxation

Unlike a corporation which is subject to “double taxation” (i.e. a corporation pays taxes on its annual earnings while shareholders must also make tax payments on dividend payments), an LLC is eligible for flow-through (aka pass-through) taxation under IRS rules.  A Flow-Through entity, such as an LLC, is not subject to taxation.  Rather, taxes are only paid once the income passes to the owners.

Ultimately, the beauty of an LLC is that it offers the limited liability of a corporation with the freedom and tax advantages of a partnership.  Owners of an LLC are shielded from personal liability, avoid double-taxation, and have the flexibility to organize the LLC management structure in any way they see fit.

Our Glendale business attorneys will help you make the right decision as each entity has its own significant consequences in matters pertaining to issues of liability, management, ownership, and control; business succession matters such as transfer, assignment, and dissolution; as well as business taxation.

For further question regarding incorporating your business, feel free to contact our office at (310) 943-1172. Our attorneys speak English, French, Spanish, Russian, Armenian, and Italian.

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