Using Limited Liability Company as your Small Business Legal Structure

A Limited Liability Company (LLC) brings together some of the best features of partnerships and corporations.  This type of legal entity for small businesses came into being about 10 years ago.  Their popularity with small business owners is relatively new and this type of legal entity has had the largest growth rate of any of the legal structures for small businesses over the past five years.

This type of  small business ownership was created to provide small business owners with the liability protection of corporations,  but without the double taxation.  As in the case of general partnerships and S Corporations, Limited Liability Company’s also have their earnings and losses “pass through” to the owners and are included on their personal tax returns.

Unlike S Corporations which has a limit of 100 shareholders there is no limit on how many shareholders an LLC can have.  Additionally, any member or owner of the LLC is allowed to participate fully in the operation of the small business.

In the set up phase of an LLC one must file articles of organization with the secretary of state in the state where you intend to do business.  In some states there is a requirement to file an operating agreement, which is similar to a partnership agreement.

LLCs do not have perpetual life.  Some state statutes that the company must dissolve in 30 to 40 years, but technically, the company dissolves when a member dies, quits, or simply retires.

If you plan to operate your small business in several states, you will have to determine how a state will treat an LLC formed in another state.   This does vary from state to state.

A good source for setting up an LLC for you on the Internet is at www.bizfilings.com .

They charge about $750 for a complete set up and the process takes about 10 days to two weeks.  Of course you can consult your own attorney to see if he will do it for you.  CPA’s will usually suggest you go to an attorney unless they have a regular business in setting up LLCs for small businesses.

There is another recent development in the Limited Liability Partnership (LLP).  With an LLP, the general partners are liable for their own malpractice and not of their partners.  Obviously, an LLP is usually done for small businesses in the practice of medicine.

I prefer the LLP personally.  This type of legal structure works best for me.  But do your own due diligence and choose a legal entity that is right for your own small business.  Good Luck!