In any discussion about business entities, the LLC choice is often an option for corporations, partnerships and so on as though it has been around forever. Most people are surprised and even shocked to learn the LLC is a very recent phenomenon as far as business entities go.
Despite the novelty of the LLC, business people, lawyers and accountants now consider the LLC as the presumptive entity of choice for the new business start-up. The LLC laws were specifically designed to provide new business owners with a legal entity that has all the advantages of other legal entity choices but without the disadvantages of those same other entities.
This report summarizes the major advantages of LLC companies in Georgia over other entities:
Contents
What is a Limited Liability Company a.k.a. LLC?
The first LLC came into existence in Wyoming in the late 1970s. The purported reason was the state was trying to create a business entity that was friendly to use by small businesses. The real reason, of course, was the state was trying to generate extra revenue sources. After a favorable tax ruling by the IRS in the late 1980s, every other state in the nation jumped on the bandwagon and the LLC became the popular entity it is today.
Source: Kloss, Stenger & LoTempio
So, what is an LLC? It is a hybrid of other business entities. It provides the asset protection shield of a corporation, but without the harsh formalities required to keep it running. Instead, it combines the informalities found in a partnership as far as both administration and taxes.
The LLC also comes with its own language. The owners are not known as shareholders. Instead, they are called “members”. One or more members can manage the company. There is a document similar to bylaws that sketch out how the entity will be run, but it is called an “operating agreement”. The entity also does not have shares as would be found in a corporation. Instead, members own a percentage of the LLC.
Cons
There are a couple of downsides to the LLC, mostly financial. The first problem is states have overtaxed the entities to the point where you can expect to pay more fees regarding a California LLC than any other business entity. Another problem arises with an LLC owned by one person. Specifically, the IRS reclassifies such an entity as a sole proprietorship, which means you must pay self-employment taxes on your profit at a rate of 15.3 percent.
It is a relatively new business entity with the best features of a corporation and partnership. That being said, the fees and tax situations surrounding it can often make it a poor choice for many small businesses.
Source: How to Start an LLCGive a formal name to your Business
While forming an LLC, one needs to select a business name. The name has to be unique and not registered before in the state where the business is being formed. To check for business name availability, you would need to carry out, what is called as “Business Entity Search”.
Using the search, you can check for the availability of the business name. But one thing to note here is, that each state maintains its own search tool and there is no single database where you can carry out the search. So if you’re looking to carry out the search in Delaware, you would need to search through the Delaware business entity search page (Link). Similarly, California, Nevada etc maintain their own search tool.
For example, Snap on LLC is headquartered in Wisconsin, that means no other company can register a business with the same name. And at the same time Snap On has the option to file for trademark nationally, which would mean none can register the name nationally.
Asset Protection
All owners of an LLC are protected from being personally liable for the debts, obligations and lawsuits of the LLC. This protection basically states that a member is not liable just because he or she is a member/owner of the LLC. There are important guidelines and principles that all LLC companies in Georgia need to know and follow to ensure that this limited liability protection is not lost.
Source: TeleRead
Entity Status
An LLC is its own separate entity. This means that an LLC is a legal person separate and apart from its owners. This is important from a business continuity perspective. If a member, manager or a key employee dies or leaves the business, the business still continues.
Management Structure Options
LLC companies in Georgia and all other states can choose between two simple management structures: (i) member managed or (ii) manager managed. The LLC laws allow members great flexibility in deciding how they want the LLC business to be managed and what rules to impose upon the LLC when it comes to governance and management.
Informal Decision-Making Procedures
The LLC laws intentionally impose very little formalities when it comes to LLC decision-making among members and managers.
Source: Founder’s Guide
Flexibility in Ownership Structure
The LLC laws are based on contractual flexibility. This means that the laws allow the Members themselves to decide the ownership structure, right to profits, voting rights and any other expect of the member relationships amongst each other and the LLC.
Flexible Tax Choices
In 1997, the Internal Revenue Service passed a regulation which provided a high benefit for LLCs. The regulation, known as the Check the Box regulations, basically allows for the LLC’s members to choose how the LLC will be taxed for federal income tax purposes.
For the single-member LLC that is owned by an individual, the LLC can take advantage of having simple sole proprietorship federal income taxation, but without the personal liability of sole proprietorships. For the single-member LLC that is owned by an entity, the tax choices afford the business free from the complex consolidated return regulations.
For the multi-member LLC, the law allows partnership pass-through taxation without requiring the LLC to comply with all the complex rules imposed upon a corporation that wants pass-through taxation. At the same, time both single member and multi-member LLCs can choose to be taxed as a corporation as well. If you are confused on how taxing works, and if you don’t understand the crucial differences between LLC vs S-Corp, you can always find useful articles to help you better understand this, like this one from HTSALLC.
Source: The Blue Diamond Gallery
To Summarize
Accordingly, there are many advantages to LLCs and without a doubt, one can go for this particular business structure.
