Posted on Wednesday 15 July 2009
A limited liability company or an LLC is a form of business that is done legally providing limited liabilities to its owners. This institution has certain characteristics of both a corporation and a partnership. Thus it is sometimes misinterpreted as a limited liability corporation. It is not always easy to form a business and while forming an LLC entrepreneurs make certain mistakes. Some of them are:
Incorporating and operating without having proper local business license
Getting a proper license and permits is an important factor that has to be dealt in with a fair amount of knowledge of state laws before forming an LLC. Too often, these are not done properly by the owners and they discover that they are not in compliance with the local business laws and policies. This results in paying of thousands of dollars as fines or back taxes or even additional penalties by the company.
Assuming unlimited liability protection under corporate veil
A corporation always affords liability protection but that protection does not cover any criminal acts, fraudulent practices or use of the corporation for using corporate funds for personal expenses. These can ultimately result in financial and personal criminal offences and brings huge penalties and punishment for going outside of the law.
Incorporating and not filing proper taxes and periodic papers to the state government
Every state follows its own laws to deal with tax and periodic paper work for any business being conducted. While and after incorporating an LLC, the state demands updates on ownership, tax liability for the particular municipality and also updated paper work for the kind of business your organization is conducting. Sometimes, owners of LLCs fail to submit these required documents and thus ignore the state laws which result in penalties.
Lingering to have international intellectual property protection
In the United States after creating an LLC or any authorized business, a patent application has to be filed along with a fee, and the business must obtain the required trademark. Unless this process is done in accordance with the law, the corporation cannot proceed in businesses legally. Also of the LLCs whose products are shipped overseas, must wait to have international intellectual property protection.
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forming an llc,
limited Liability Company LLC
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Posted on Thursday 9 April 2009
When you make the decision to incorporate your business, it is important to decide what structure your business assumes. Each structure has different limitations and liabilities, therefore you must figure out what is best for your business needs. Your accountant or attorney can help you decide what type of business structure best fits. Below are the types of entities to consider.
Sole Proprietorship
A sole proprietorship is the simplest form of business entity with the least amount of legal formalities. There is no procedure to form a sole proprietorship and there are few accounting requirements. In a proprietorship, the single owner assumes sole responsibility for the operations and finances of the business, including profit and loss. In the proprietorship type of business entity, the owner’s personal property is tied directly to the business; therefore, the owner assumes unlimited risk of his personal assets.
General Partnership
General Partnerships require an agreement between two or more individuals or entities to jointly own and operate a business. A partnership operates from a tax perspective as a “pass through†entity which means that all items of income and deductions pass through the partnership to the partners according to percentage of ownership or partnership agreement. Profit, loss and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. Partnerships do not pay taxes, but must file an informational return, while individual partners report their share of profits and losses on their personal return. Short term partnerships are also known as joint ventures.
Limited Partnership
A limited partnership is a form of business organization that offers some of the partner’s limited liability. It consists of a general partner who organizes and manages the partnership and its operations, and limited partners who contribute capital but have limited liability and assume no active role in day-to-day business affairs.
Limited Liability Partnership
LLP’s are organized to protect individual partners from personal liability for the negligent acts of other partners or employees not under their direct control. LLP’s are not recognized by every state and those that do, sometimes limit LLP’s to organizations that provide a professional service, such as medicine or law, for which each partner is licensed. Partners report their share of profits and losses on their personal tax returns.
“C†Corporation
Corporations are a separate entity from its owners. Corporations provide the shareholders with the most protection from liability and responsibility from debts and contracts. Profits for a corporation are taxed at the corporate level when the income is earned and is also taxed at the individual shareholder level. This protects the owner most from any issues that may arise so that the owner’s personal properties are not at risk.
“S” Corporation
An “S” Corporation is similar to a corporation in that it provides its shareholders with protection from liability. However, unlike a corporation, an “S” corporation is exempt from federal income tax. Instead the taxes are paid solely by the individual shareholders.
Limited Liability Company
A Limited Liability Company (LLC) is a combination of the corporate and partnership forms of business. In an LLC, parties control shares of the company and like corporations, their liability for the operations of the company is determined by their level of investment. However, like partnerships, income tax is not paid at the LLC level, but rather it is “passed through” and taxed at the shareholder level.
TAGS: Incorporate a Business,
limited Liability Company LLC
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