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Choosing An LLC In California

California is a high risk, high reward state for businesses. The market is potentially very profitable, but the risk of being sued for something is also high. An LLC may be the answer to the risk factor.

Limited liability companies have been around forever, right? Nope. The first appeared less than 30 years ago in Wyoming. They were created to help small businesses.

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.

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.

Before LLCs, many small businesses operated as partnerships. This created a bad situation since each owners' personal assets were completely exposed to any business debts or lawsuits. The LLC resolved this by providing asset protection.

All is not perfect with an LLC however. It may sound like it, but there are a couple of situations that can be problematic.

Many businesses are started with the idea of going public. If this is your goal, an LLC is a bad choice. Simply put, you cannot take it public. The LLC does not have shares, so there is nothing to trade!

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.

Another danger with the LLC is the lack of formality. This can be a good thing, but it can also lead to laziness and sloppiness by owners. You must practice good business administration to avoid this problem.

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.