Starting a Limited Liability Company

If you contemplate starting a LLC, "Starting A Limited Liability Company" is a good book to help you learn a bit about the LLC business structure. The authors tell us that an LLC is a hybrid between a partnership and a corporation, combining the best of both. We also learn that because of its simplicity, LLC's are becoming the most popular business structure for new enterprises.When deciding which business structure to use, the authors say we should ask ourselves the question: "Is there any reason to consider any approach other than an LLC?" The authors suggest that many S-corporations and C-corporations would switch to the LLC structure if it weren't for tax issues involved with making the conversion.I don't believe that's fully true. The S-corporation has one or two very powerful advantages over the LLC. First, for members who are active in operating an LLC, the earnings are subject to self-employment taxation. With an S-corporation, part of the distributed earnings could be paid as wages and part as distributions. Those distributions legally escape employment taxation. This can save the entrepreneur $6,000 or so a year in employment taxes (Figuring about $40,000 a year in wages and $40,000 in distributions, and using 15% as the approximate employment tax rate, saves about $6,000 per year). Compounding those amounts over 25 years can easily amount to half a million dollars or more. Many entrepreneurs would rather invest that money themselves rather than pay it into the Social Security system.The second advantage to S-corporations is that for companies operating in multiple states, corporate law is better established than LLC law. So, for entrepreneurs who started with S-corporations, there really seems to be little reason to convert.The authors say that the LLC is a good structure for tech companies. But, for various reasons, most tech companies will probably operate as C-corporations. For example, C-corporations can offer employee stock options. And, if they desire the pass-through nature of early losses, an S-corporation works well.The LLC offers a certain familiarity for sole proprietors who wish to become LLCs, because we learn that a single-member LLC is essentially disregarded for tax purposes. The single owner files Schedule C, just as if he/she were a sole proprietor. The authors devote a chapter to home-based businesses, saying sole proprietors might want to consider converting to an LLC to gain the benefits of liability protection. The authors also say having an "LLC" name makes the business sound more professional than a sole proprietorship.The book includes a good chapter about "piercing the LLC veil." As with corporations, an LLC is a separate entity from the individual/individuals owning it and certain formalities must be taken to distinguish between the two or the protections of LLC formation can be lost. For example, don't commingle LLC money and personal funds.If you're thinking of starting a LLC, "Starting A Limited Liability

I found this book to be very helpful, especially in the area of writing an Operating Agreement. The authors compare LLCs with other types of business structures and give the advantages/disadvantages of each. They have also added notes and tips throughout the book that will help you resolve issues in setting up your company. I used the tips to compile a checklist for setting up my business. Finally, there are plenty of sample documents that you can adapt for your own use. Although I have gotten an attorney to help with the fine details related to my state, I would highly recommend this book to help you understand and plan an LLC.

This book saved my company quite a bit of money. We were considering incorporation, but this book tuned us into a better alternative! It contains all the info needed to form a LLC on your own.