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

Entity Structure Considerations When Choosing Between a LLC and a Corporation

It’s important to understand the significant (and sometimes subtle) differences between the various choices when determining the right entity structure for your new venture. Today’s post details some important distinctions between corporations and LLCs.

The Distinction Between State Entities vs. Federal Tax Elections 

For state law purposes, there are two primary entities that the choice of entity generally comes down to: corporations and LLCs. Corporations and LLCs both offer limited liability to owners of the company. This means that (absent extraordinary circumstances) if the business is sued, only business assets are at risk and the ownerss personal assets will be shielded from the company’s liabilities.

For federal tax purposes, there are three primary tax classifications that most companies are organized under: C corporations, S corporations, and...

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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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Business Startup

Why an LLC Taxed as an S Corporation is an Attractive Option for Businesses

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. Below we’ve highlighted one important consideration when forming your LLC: whether to elect to be an LLC taxed as an S corporation. 

Distinction between LLC and S Corporation

It is important to understand the distinction between an LLC and a S corporation. An LLC is a specific type of limited liability entity that is governed by state statutes and offers the owners (also known as “members”) limited liability protection when conducting business...

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Business Startup

Getting Back to the Basics: Choosing the Best Entity For Your New Business (Part 2): LLCs and Corporations

In our first post in this series on choosing the best entity for your new business we explored sole proprietorships and partnerships. Today’s post will highlight two additional business entities: the limited liability company (LLC) and corporation.

Flexibility is Key for the LLC

An LLC is a legal entity in which one or more individuals (“members”) have limited liability for the business’ debts and obligations even if they participate in management of the company. Members of an LLC have great flexibility in structuring the operation and management of their venture through the LLC’s governing document, known as an operating agreement. If the LLC does not draft an operating agreement, its activities will be governed by state statute.

For tax purposes, an LLC is...

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Business Startup

The Benefits of a Buy Sell Agreement

A Buy Sell Agreement is a legal contract between the owner(s) of a business and the entity, to purchase and sell interests in the business at a pre-determined price if certain future events occur (e.g. death, disability, outside party purchase offer, or termination of employment). The Buy Sell Agreement can help ensure a smooth transition for the entity, remaining owners, and departing owners of a business.

Benefiting the Entity There are a number of reasons why you may want to have a Buy Sell Agreement drafted for your business. The business may want to prevent unwanted or adverse third parties from acquiring an ownership interest in the entity. You can structure the Buy Sell Agreement in a way that triggers an buy-out...

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Business Startup

Why do Venture Capitalists Prefer to Invest in Corporations?

With the rise in formation of limited liability companies (LLC), why do venture capitalists (VC) still prefer to invest in corporations? This is a common question within the startup community. With so many choices—partnership, LLC, S corporation (S corp), C corporation (C corp), etc.—it can be a challenging task to pin down exactly what form of legal entity to choose for your new business. However, if your business plan is dependent on seeking VC funding, your entity choice can be narrowed down to one: the C Corp. Today’s post details the most important reasons why venture capitalists prefer to invest in corporations.

Stock and Shareholder Restrictions One benefit to a  C corporation is that it allows for two or more classes of...

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