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The basics of choosing to become a limited liability company

From hiring the right employees to attracting customers, new business owners in California typically have an assortment of things on their to-do lists. Another important consideration for entrepreneurs just launching a new enterprise is how they'll opt to classify their business for legal purposes. While there are several options available, one of the least complicated is to establish a business as a limited liability company, or LLC.

The LLC designation is often preferable for business formation and planning purposes because of the flexibility it offers. Business owners benefit from the pass-through taxation benefits associated with a sole proprietorship and the limited liability protection that goes along with being a corporation. This means that an LLC will have equal legal and financial protection. In regard to taxation, an LLC would include business taxes on a personal income tax form, thus eliminating the need to file a separate corporate tax return.

A limited liability company would also have legal protection against debts, lawsuits and various financial threats. Additionally, LLCs tend to be easy to set up and administer. There are also fewer compliance issues associated with an LLC.

While there are many compelling reasons for businesses to establish themselves as an LLC, there are some downsides to consider. For instance, an LLC may not be the best option for companies wishing to raise investment funds (this isn't allowed with LLCs) or enjoy corporate tax breaks. A self-employment tax classification may also mean higher taxes, and LLCs don't have the structure that's common with corporations.

If a company's owners prefer to go with an LLC setup, a lawyer could draw up the necessary documents. While the LLC application process can often be handled within a single day, it's helpful for new business owners to seek legal input to ensure compliance with state requirements.

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