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 a notoriously bad place to do business given the taxes, fees and regulations. The state is also slow to acknowledge new business developments. In fact, it didn't start allowing LLCs until the early 1990s.
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.
No business owner wants to be exposed to losing personal assets if their business is sued. A limited liability company avoids this problem by protecting the business owner from personal liability for business debts.
Taxes are the second bane of all small businesses. To ease the burden, the entity was designed to be taxed like partnership, which avoided the double taxation problem found with corporations.
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.
Another potential problem has to do with taxes for a certain type of LLC. Many states allow a single owner LLC. The IRS requires that such entities have the owner file as a sole-proprietor, which means there is no real tax advantage.
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.
If you are doing business in California, you need protection. There are over a hundred thousand attorneys in the state! A California LLC is often the best defense you have.
