Business Startup

LLC Basics: Appealing Characteristics of LLCs

Over the last 20+ years, LLCs have become one of the most popular types of business entity. Entrepreneurs find LLCs appealing because they offer limited liability, pass-through taxation, flexibility in management and operations, and have relatively simple statutory requirements. We’ve highlighted the “LLC basics” in today’s post.

Limited Liability Protection

Like corporations and other limited liability entities, limited liability companies offer owners (also referred to as “members”) protection against personal liability. If the owner of a sole proprietorship or general partnership gets sued, then their personal assets  are at risk. But if the owner of an LLC gets sued, the business assets would be at risk, but their personal assets will generally not be subject to the lawsuit.

Pass-Through Taxation

The federal government does not...

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Business Startup

Can LLC Members Pay Themselves a Salary?

As we’ve discussed in previous posts, the limited liability company (LLC) entity offers a ton of flexibility when organizing the management and economic structure of the company. Because of this flexibility, the LLC has quickly become the most popular entity to form when seeking limited liability protection for new businesses. One question that often crops up is, “Can I pay myself a salary as the owner of a LLC?”

Can LLC Members Pay Themselves a Salary?

The short answer is: It depends on how the LLC is taxed.

LLC Taxed as a Partnership

For tax purposes, a LLC is by default a pass-through entity—i.e. any money that comes into the business will “pass-through” to the individual members of the company regardless of whether they receive...

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Corporate Finance & Securities

Why C Corporations are the Preferred Entity for Tech Startups

Generally, tech startups that hope to scale and become the next Amazon or Twitter are going to seek capital from angel investors and venture capitalists. This extra capital will likely be necessary to enable your business to hire engineers and build the foundation for your company to take off.

Angel investors and venture capitalists generally don’t want to be part of an LLC, and you probably wouldn’t want them to be a member of your LLC. These investors have day jobs or identify startup talent for a living, so they do not want to be overly burdened with the day to day affairs of a new startup. They are generally passive investors.

This entire discussion presupposes that we’re talking about the default...

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Business Startup

Acting on Behalf of the Business? Are you liable?

There’s a common phrase in the business world; “acting on behalf of” seems to find it’s way into a number of business documents and legal contracts. What does it really mean to be acting on behalf of? Who’s liable for what in these situations? Today’s post will detail some of the basics behind agency law and some of the principles that determine liability when you act on behalf of another person or business.

Determining the Agency Relationship The term “agency” refers to a legal relationship between two parties, the agent and the principal.  The agent is the legal representative of the principal, which may be a person or entity. The agency relationship is established once one person has the legal authority to...

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