Many people are surprised to learn that the LLC business entity
is a fairly recent phenomenon. Wyoming was the first state to
legislate the creation of LLCs in 1977. Most states didn’t jump
on the LLC bandwagon until 1988 when the IRS classified the LLC
as a pass through entity for tax purposes. This ruling turned
LLCs into the popular monster they are today. Now every state
has legislation allowing the creation of LLCs and California is
no different.

What Are The Advantages To Forming A LLC?

The LLC business entity offers many advantages to small
businesses. An LLC is going to provide a shield between your
business activities and personal assets identical to a
corporation. Unlike a corporation, there are far fewer
corporate formalities. Instead of setting up payroll, you can
take draws from the entity. You are not required to maintain a
balance sheet, although this is recommended. In short, the LLC
entity is all about flexibility.

Should I Form A California LLC For My Business?

Maybe. While LLCs offer significant flexibility to small
businesses, California charges an LLC tax that can really cramp
your profits. This tax is charged on your gross revenues for the
"privilege of doing business in California" as an LLC. Lucky
you. Depending upon your situation, forming an “S” corporation
may be a better option in California.

Additional Tax Issues

California allows a single person to own an LLC. This causes
problems from a tax perspective. The IRS doesn’t really
acknowledge the existence of LLCs owned by one person. The IRS
takes the position that you must have two people to be taxes as
a partnership. Accordingly, it treats single owner LLCs as sole
proprietorships. The problem with this result is that you end
up paying self-employment taxes.

While LLC structures provide significant flexibility, the
structure is not always the best choice for a small business.
Make sure you speak with competent tax counsel prior to forming
an LLC for your business.

About the Author: Richard Chapo, Esq., is with
http://www.sandiegobusinesslawfirm.com offering business law
advice to California businesses. This article is for general
education purposes and does not address every facet of the
subject matter. Nothing in this article creates an
attorney-client relationship.

Source: http://www.isnare.com

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