You’ve heard about LLCs and their popularity. Why are they so widely used and why is California such a prominent state for their formations? To follow are the advantages of forming an LLC in the state of California.
What are LLCs?
LLCs (or Limited Liability Companies) are very extensively used as business formations because of the company’s structure. They put owners in good positions in relation to personal asset protection, they are relatively easy to form, and they have favorable tax conditions.
Why start an LLC in California?
California can be considered a great place to start a business because it is ranked well within the US in relation to business. California has the largest economy in the US and has excellent access to venture capital. It is a very popular place for entrepreneurs! Statistically, California ranks, out of all 50 states: 1st in Access to Venture Capital, 2nd in Economic Climate, and 4th in Entrepreneurship. Not only this, but California is known for its culture and food, notwithstanding the fact that California gave rise to Hollywood, the absolute center of the American Film Industry.
The Benefits:
In summary, the benefits to be discussed in more detail related to ease of formation, protection of personal assets, lack of double taxation, fewer restrictions on how ownership may be structured, and increased credibility established in both clients and creditors.
It’s easy to start and simple to maintain:
In accordance with the benefits that all LLCs have as a business type, starting an LLC in California is fairly simple. The costs are minimal and paperwork for the maintenance of the company isn’t excessive. LLCs are not obligated to appoint formal officers, have year-to-year meetings, nor take down official minutes and submit proposals for the continuance of the business.
No danger of having personal assets taken away:
A significant benefit of forming an LLC is that owners are protected far more than in other business types. You, as the owner, are not personally responsible for the debts and duties of the business. As such, should the business run into legal trouble or default on loans, your personal assets are not in danger of being repossessed.
No double taxation:
LLCs are not taxed twice like corporations are. Profits made from the business go straight to the owners and as such is reflected in their personal tax returns. Double taxation means that taxes are paid on the profits prior to the owners’ receiving their share, and they are then taxed again when the owners file their personal tax returns. Another benefit relating to tax is that LLCs have the option of being taxed as a C-Corp or as an S-Corp. This is a decision to be made by the owners and depends on which is most advantageous to the company.
There is no set ownership structure:
LLCs can be constructed in many different ways. There can be only one owner or have many different owners. When the business is multi-membered, there are various ways in which the business can be operated. Should the members manage the business themselves, it’s called member-managed whereas if the members hire a manager, it’s called managed-managed.
More trust in the business:
The LLC is known as a more official business structure, especially when compared to partnerships and sole proprietorships. Clients and creditors both tend to have more trust in the business when they become aware that it is an LLC. As such, clients are more likely to support the business and increase profits. Banks are also more favourable to giving business loans. This occurs after the LLC builds a credit history which allows the business to apply for loans and lines of credit. There are special funding-options available if the business is women-owned.
More Information:
Should you need more information, TRUiC expands on how to form an LLC in California, as well as the numerous advantages involved.