Liability Protection with Limited Liability Companies and Corporations
Liability is part of any business. Even if you are operating a business with your own resources and cash, there are many potential liabilities that may arise at any point of time. If your personal assets are not adequately protected, you stand to lose all your hard earned money due to a minor error or omission. State statutes have business structures that enable you to adequately protect your personal property but still provide you with enough flexibility to manage your business.
Corporations and Limited Liability Companies are two options for limiting your personal liability and protecting your personal assets. Limited liability partnerships are also a business structure that can limit personal liability of business owners but is restricted to specific businesses or professions in many states. The owners of these business structures have limited personal liability in business obligations. Limited Liability Companies are often incorrectly termed limited liability corporations or LLC Corp. LLC is an unincorporated entity but shares the limited liability characteristic with a corporation. LLC has the flexibility of operations as that of a partnership or sole proprietorship without the burden of unlimited personal liability of these business forms.
LLC’s are easy to form and convenient to operate. LLC business can start with filing an Articles of Organization with the state agency that deals with business registrations and paying the filing fees. It is prudent to have an LLC operating agreement in place. The llc operating agreement will portray individual existence and provide visibility to the limited liability status of the company. The owners of the LLC (called members) have the flexibility of partners of a general partnership in the management of the business while their personal liability is limited as that of share holders in a corporation. The members of the LLC can elect to be taxed as any other business entity like a partnership or corporation according to their convenience.
In LLC vs. corporation, the standard C corporations are subject corporate income tax and when the profits are distributed to the shareholders, they in turn have to report the income in their personal tax returns and pay tax if applicable. In LLC vs S Corporation, both have pass through taxation similar to that of a partnership and the members report the income in personal tax returns. This can avoid the double taxation involved in a C corporation. However, in all business entities, employment taxes or license fees are payable, if any are applicable to them.
