Should You Form a Limited Liability Company?

A Limited Liability Company (LLC) is basically a hybrid of a partnership and a corporation, taking all of the good elements from each entity and leaving the bad ones. We have listed a few of the positive aspects related to forming an LLC in this post; however, your particular situation may vary and you should reach out to our business attorney Trevor Carson for a consultation to ensure you form the best entity for your needs.

An LLC with two or more members may elect taxation as a partnership or a corporation. Taxation as a partnership on both the state and federal levels is generally very beneficial. The LLC will avoid the double taxation related to a general corporation and will not have the restrictions associated with an S corporation, close corporation, or limited partnerships. An LLC also allows for a flexible allocation of income, gains, and losses according to an agreement rather than standard capital interest.

Members of the LLC may limit any personal liability to the amount of their investment. Hence, generally speaking, a member of an LLC is not personally liable for any debts or obligations of the LLC. There are exceptions however, like a court judgment, personally agreeing to be liable, the alter ego doctrine, personal tortious conduct, breach of a fiduciary duty by a manager or director, as well as a few other specific exceptions.

Moreover, limited partners who participate in the management and control of the partnership are not entitled to liability protection; however, the management of an LLC may still be protected.

Corporations are heavily governed. An LLC, on the other hand, has much more flexibility and may be managed by member or non-members. This provides an opportunity to expand the knowledge and specialization of management; thus, establishing a solid foundation for business judgments.

If you have more questions, please contact our Sacramento Business attorneys to set up an initial consultation to discuss setting up an LLC.

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*The information provided in this post does not constitute legal advice or opinion. The information is for guidance purposes only. Individual situations vary and you should contact us for a consultation.