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Should You Form An LLC For Your California Business?

"If you are thinking of starting a business in California, it makes sense to protect yourself with a business entity. With over 100,000 lawyers in the state, it may be the smartest move you ever make.

To the surprise of many, the LLC has not been around for all that long. The first one was created in the late 1970s in Wyoming of all places.

California is not known as a business friendly state. This proved to be true with the limited liability company as well.
It took the state nearly 15 years before it started allowing them after they first appeared in other states.

A limited liability company is much like Frankenstein, but in a good way. It takes the best elements of other entities and ties them together in a way that simply works.

Few small businesses can withstand being sued, particularly if your personal assets are at stake. The LLC was designed to prevent losing your personal assets by providing the same liability protection found with a corporation.

No business owner wants to be double taxed as can often happen with a corporation. The LLC resolves this by borrowing the tax classification of a partnership, to wit, finances are passed through to the owners.

One might wonder why he or she should select an LLC over a partnership. The answer is liability. A partnership provides no protection to the owners, while an LLC does.

At this point, you might think the LLC is the obvious choice if you are going to start a business. It often is, but there are a few exceptions. Here are two that come to mind.

One way to make huge money with a business is to go public like Microsoft. An LLC, however, cannot be taken public. The ownership of the entity is held as member interest, not shares.

Taxes are a complicated subject as well. Although you can choose to have your limited liability company taxed like a partnership, this is only true if there are two or more owners. Single owners get taxed like the self-employed, which offers no tax benefits.

The LLC can be problematic in another way. Because it requires little paperwork or administration, owners can fail to keep up with even the minimum requirements. This can be dangerous if anyone every challenges the validity of the entity.

All and all, the LLC is a very good choice for many smaller businesses. In a state like California, you get the liability protection of a corporation with the tax ease of a partnership."

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