A new business can be operated under different structures. One of the popular structures is the limited liability company (LLC). The abbreviation LLC lends credibility to a business name since customers and suppliers know it is a registered company. There are also additional legal and financial benefits to forming an LLC. As new business registrations keep increasing according to government statistics, which states should you consider and what is there to know about LLC’s in general?
What is an LLC?
An LLC is a company that is registered at the Secretary of State office which has one or more owners known as members. It is a relatively new hybrid business structure that provides the operational flexibility and tax efficiency of a partnership while providing the limited liability of a corporation. LLCs used to have a limited duration of 20 years, but now most states allow LLCs to have perpetual existence, just like regular corporations. (Reference: https://howtostartanllc.com/what-is-an-llc)
Benefits of starting an LLC in Florida
For a person starting a new business in Florida, there are a number of benefits of registering an LLC.
- Flexibility. The Florida LLC does not limit the number of members allowed and the members have free choice in how they structure management of the company and how profits are distributed.
- Personal asset protection. The Florida LLC provides the same limited liability offered by a corporation. Therefore, the members’ assets are considered to be separate from the company and are not at risk if the company is sued or goes bankrupt.
- Tax advantages. The business is relatively free from tax at state level since the state of Florida does not tax individual income. The LLC chooses whether to be taxed as a partnership or as a corporation at federal level, depending on which method offers more advantages for the members. This tax advantage makes a Florida LLC a desirable business structure for entrepreneurs.
- Less formalities. Managing a Florida LLC is simpler than a corporation, as it does not require corporate minutes and resolutions. However, it is still advisable to hold annual members’ meetings and to document major business decisions for future reference.
- A Florida LLC can have subsidiaries without restriction.
Benefits of starting an LLC in Texas
Starting an LLC in Texas brings the following advantages to the members.
- Lower registration costs. The cost of registering an LLC in Texas is lower than the registration fees for a limited partnership and a limited liability partnership and is equal to registration fees for a corporation.
- Flexibility of membership. Texas law does not restrict how many members an LLC can have.
- Less formalities. The state of Texas does not require an LLC to hold annual meetings or to keep detailed minutes and resolutions. However, it is good business practice to do this.
- Limited personal liability. The members of the LLC are not personally liable for the business’ debts, including those arising from lawsuits. This is possibly the biggest benefit.
- Flexible tax treatment. The state of Texas does not levy a tax on profits and only charges annual franchise tax. At the federal level, the IRS allows an LLC with one member to be taxed as a sole proprietor, a multi-member LLC to be taxed as a partnership, and both to be taxed as an S corporation or a C corporation.
Benefits of starting an LLC in California
Here are the benefits of registering an LLC in California.
- Limited liability. Limited liability is the major reason people choose an LLC because all members are not personally liable for the business’ debts, including lawsuits brought upon the company.
- Membership flexibility. A California LLC is allowed to have as many members as it wants without restriction.
- Simpler structure. The LLC can be managed by its member(s) or the member(s) can employ managers to run the business.
- Less formality. The LLC members are not required by law to hold annual general meetings and to keep minutes and resolutions of their meetings.
- Pass-through tax advantage. An LLC with one member can choose whether to be taxed as a sole proprietor or an S corporation or a C corporation. A multiple-member LLC can elect to be taxed as a partnership, an S corporation or a C corporation. If the members are assessed for tax as individuals, they pay both federal and state income tax.
This is a huge advantage over a corporation that has to pay tax at the corporate level and the shareholders have to pay tax on dividends, what is commonly known as “double-taxation.”
- Easy transfer of ownership. The operating agreement of the LLC can provide for transfer of a member’s share of the business upon death or sale.
- Flexible profit distribution. The members can choose how they wish to distribute the profits of the business.
Compare all the states in relation to your own circumstances and do some homework before registration. As the Trump tax cuts draw interest from abroad, expect LLC registrations to break new records.