Klein and Associates assists in a variety of business formations including partnerships, limited partnerships, corporations, and limited liability companies. We can review your needs and assess what is right for your starting or current business.
Limited liability companies (LLCs) are a stellar choice for many businesses combining the advantages of a partnership and the liability protection of a corporation.
A business can be conducted in a number of forms, such as a proprietorship, partnership, a regular corporation, or an S corporation. Doing business as a partnership has many tax advantages. Income is taxed only once, and there is great flexibility in how income and deductions are passed through to the partners. But the partners’ assets are put at risk, since each general partner is personally liable for the partnership debts and obligations.
Corporations don’t have the liability problem, since shareholders aren’t responsible for debts of the corporation. However, a corporation’s income may be taxed twice, once when the corporation earns it and once when it is distributed to the shareholders in the form of dividends.
Corporations are also required to maintain corporate records including the issuance of shares, board of director meetings as well are shareholder minutes. Limited liability companies are governed by a document called an operating agreement which generally does not require annual documented meetings. Therefore, less paperwork is required for an LLC.
Electing to be an S corporation oftentimes avoids double taxation. But S corporations have many restrictions on structure and possible disqualification as well as the need to maintain corporate records.
The limited liability company offers a way out of this dilemma. Investors, known as members, own an LLC. It is managed either by the members themselves or by designated managers, usually entitled Managing Members.
Like shareholders of a corporation, the members’ liability is limited to the amount of their investment. The LLC, absent any other election, will be treated as a partnership for tax purposes. Then there are no restrictions on the number and type of members, as there are with the shareholders of an S corporation. And, if after careful determination, the S corporation taxation format would be best for your business, we can assist in having the LLC elect this tax status while retaining its informal structure – again the best of both worlds!
Making the right choice for your business start-up or to convert your existing business to an LLC is tricky, let us help.