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Archive for the ‘LLC vs. Other Corporate Structures’ Category

27 May 2011

Join Me at My Boot Camp — Get $250 Off

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Posted in Dissolving an LLC, LLC and Taxes, LLC Basics, LLC Formation, LLC Maintanence, LLC vs. Other Corporate Structures, uncategorized | Leave a comment

We want to reward our FaceBook friends; here’s what we’ve got going on:

We have a boot camp going on in Salt Lake City, UT from June 20th to 21st and we would love to have you come! So here’s what we’ll do. First, go to our FaceBook page and click “Like” at the very top of the page. Next, give us a call and let us know that you saw this blog post, “Liked” us on FaceBook, and would like to attend boot camp. That’s it!! You do those two things and we’ll give you $250 off the original boot camp price!

If you refer a friend, have them do those same things, and when they call in, have them mention your name and we’ll ship you our award-winning book “Guaranteed Millionaire.”

The catch? Well, this is only open to the first 20 people that call in; we’ll only ship out the book to the first 10. So go for it! We’ll be waiting for the call…

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12 Feb 2011

The Big Debate: S Corp vs C Corp vs LLC

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The three most popular business entities today are the limited liability company (LLC), C corporation and S corporation. Small business start ups are put in a box where they have to do the LLC vs S corp vs C corp comparisons and pick an entity structure.

A quick comparison of the three, with the advantages and disadvantages of each should help in your S corp vs C corp vs LLC decision.

All three have an identical limited liability (corporate shield) protection. It protects the owners and management from liabilities suffered as a result of business activities. In the C corp vs S corp vs LLC decisions, the limited liability shield isn’t really an issue, because each gives good protection.

There is a big caveat on the asset protection value of the corporate shield. It is only effective if the entity, whether LLC vs S corp vs C corp, is set up properly and then managed properly.

In most cases the lawyers (even the slick ones) can get the entity papers filed properly, because the state kicks them back, if they aren’t done right. The LegalDoom sites can set one of the entities up easily, because they are just boiler plate forms.

The by laws and operating agreement are not just standard forms, or at least they shouldn’t be. When you get the lawyer’s last version of his word processing template or the LegalDoom three-easy-steps documents, you’re getting a standard form.

The neat thing about the by laws in a corporation or the operating agreement in an LLC is that you get to write that document.

As long as you are not doing something, illegal the courts will uphold pretty much anything you write in the document. That’s powerful! Do you really want the one size fits all – lowest common denominator documents to govern your business?

The tax choices, when it comes to the C corp vs S corp vs LLC decisions are basically the choice between an S corp and a C corp, because an LLC can be taxed as either corporation, a partnership, or a sole proprietorship – your choice.

The C corp can be used to provide some benefits, such as an HRA plan, for a small business which can’t be done in an S corporation. Note that the LLC can have the benefit plans, etc., associated with whatever tax structure you choose for your LLC.

Generally, a small business doesn’t want to operate as a C corporation, because the only way to get money out of a C corporation is to pay it out in a W2 wage or a dividend.

Dividends are subject to a double tax, because you have to pay income tax on the dividend when you get it, and the C corporation has to pay tax on the dividend before it is paid out. The C corporation can’t deduct the dividend as an expense when it pays it, thus the double tax.

You’ve got to have a very compelling reason before you should operate a small business as a C corp.

In the S corp vs C corp vs LLC decision process, you need to consider the “charging order protection” that the LLC offers. The corporations C or S can’t give you any charging order protection.

Effectively you can double your asset protection with the LLC. My eBook, How to Double Your Asset Protection, will walk you through 15 pages of charging order protection tips. It’s good stuff!! (The eBook AND the charging order protection.)

In the LLC vs S corp vs C corp battle, the LLC is probably the winner for the small business – bottom line.

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22 Jan 2011

Single Member LLC vs Multi Member LLC

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When you file your articles of organization with the state to form a limited liability company (LLC), one of the issues that you will have to address is whether you will be the single owner (member) of the LLC or whether there will be multiple members.

That may sound like an easy issue to address. Do you have “partners” in the business, or are you the only one doing the business? If you’re the only one, then obviously you’ll have a “single member LLC.” If you have partners you will have a multiple member LLC. Everything is easy – right?

Actually, if you are thinking of a single member LLC, you may want to think a little harder. The asset protection potential of a single member LLC is being eroded by state legislators and the courts. To understand the single member LLC vs multi member LLC discussions, you need to understand the asset protection potential an LLC offers.

An LLC has the potential of giving you basically double the asset protection a corporate structure can offer. The corporations give you the “corporate shield” protection that protects the officers, directors, and shareholders from liabilities incurred in the course of the corporation doing business.

Single member LLCs and multi member LLCs give you basically the same “corporate shield” that a corporation will. By the way, the corporate protection is exactly, identically, the same in either an S corporation or a C corporation.

If your LLC is “done properly” you can get not only the corporate shield protection but additionally what is called “charging order” protection. That protects the company and it’s assets from your personal liabilities.

I see more people lose their company through a personal disaster than I do people loose their personal assets to a business disaster. You get divorced, make bad real estate investments, are in an auto accident, or suffer any one of dozens of personal problems, and your business is suddenly at risk.

A corporate structure can’t give you any of this “charging order” protection. Both the single member LLC and the multi member LLC give you the additional protection. Your attorney and internet LegalDoom sites have never even brought up the issue of protecting the company from your personal liabilities.

For a full discussion on how to get double asset protection, get my eBook, How to Double Your Asset Protection.

The issue at hand is single member LLC vs multi member LLC. Because the concepts surrounding charging order protection grew out of a desire of the courts to protect the other “partners” in a business when one partner gets in trouble, the courts have reasoned that charging order protection shouldn’t apply to single member LLCs.

Specifically, the Supreme Court of Florida has struck down charging order protection, and Utah has actually passed legislation that removes charging order protection for single member LLCs. Also, Colorado Bankruptcy courts have set aside charging protection for single member LLCs where the single member is declaring bankruptcy personally.

The bottom line is single member LLCs are under attack in the court and legislators of a number of states, and the trend is to remove charging order protection from single member LLCs. When you are setting up your LLC, you may want to get another member so that the trend won’t affect you.

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18 Jan 2011

Can I Form LLC Partnerships?

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LLC Partnerships or Partnership LLCs are misnomers. Technically an LLC (Limited Liability Company) is a company, not a partnership. While there are some similarities between a partnership and an LLC, it is important to recognize that LLCs and partnerships are two different types of business entities.

If you have a partnership and you wish to have the liability protection that an LLC offers, you can do that. However, you will not call it a Partnership LLC or an LLC Partnership. You will simply call it an LLC.

When you form your LLC, your current partners will become LLC partners except you will call them LLC members instead of LLC partners.

The LLC requires more documentation than a partnership. First you must file Articles of Organization with your state. The Articles of Organization are a simple two or three page document that basically gives the state information on how to give you notice if you are sued.

Next your LLC needs an Operating Agreement. The Operating Agreement defines how you run the LLC, and how the world will deal with you.  You get to dictate all of these issues in the terms of your Operating Agreement.  You can set up both personal and company liability protection in this document. When you do you basically dictate the terms of the lawsuit. Why not skew the odds in your favor?

LLCs also require more maintenance than a partnership. You must hold annual company meetings and keep minutes. All business resolutions you make need to be documented. As you can see, they will be more time consuming to operate, but the extra liability protection makes it worth it.

LLCs are picked to be the business entity of choice because of their asset protection. They give you much better asset protection than a partnership. Plus LLCs give you accounting options a partnership doesn’t even approach. For instance, you can elect to have your LLC taxed as a partnership, or a corporation. You the owner of the LLC can choose how to be taxed.

There are reasons to forming a partnership, but your first thought when you think business entity should be “LLC.” Just take time to study it out. It is important to understand all the disadvantages, as well as the advantages, when you consider the legal structure for your business.

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10 Jan 2011

LLC Company Structure Compared to Corporate Structures

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The LLC company structure is very similar to the old familiar corporate structure, but there are some significant differences.

State LLC Company Structure and Corporate Structure Required Filings

Both the corporate structure and the LLC company structure require a filing with the state. Basically, you are putting the world (at least your state) on notice that you intend to do business as an LLC company and you intend to avail yourself of the laws governing LLCs in the state.

An LLC will file its articles of organization and a corporation will file its articles of incorporation. About the same information is required in both documents. The state will ask if the LLC company structure will establish a member-managed or manager-managed type company. The corporation only has “directors” so there isn’t an analogous issue to be considered in a corporate filing.

Filing Fees

The filing fees for establishing an LLC company structure and corporate structure will be basically the same, if not identical. So the cost factors won’t really enter into a decision as to whether or not you should use an LLC or a corporation.

Bylaws VS Operating Agreement

The bylaws are the guts of a corporate structure just like the operating agreement is the guts of an LLC company structure. The bylaws and operating agreement fill the same needs in each structure, but they are by no means interchangeable. One big difference you’ll find is the discussion in the operating agreement about tax choice and the involuntary transferability of ownership.

Both the bylaws and the operating agreement are unique to the company. Particularly, the operating agreement should be tailored for your needs and the way you want your LLC company structure to be “run.”

Asset Protection

The LLC can effectively give you double the asset protection of a corporation. That’s a big deal. Corporate structures are set up to protect the officers, directors and shareholders for liabilities that may occur in the corporation. They do not protect the corporation (the company) form any liabilities incurred by the stockholders.

In a large publically traded corporation, the fact that one stockholder gets into trouble and loses his or her stock is not really an issue, because one stockholder generally has no real effect on the management and operation of the corporation. However, if only one man owns the corporation (single shareholder) the corporation can easily be “lost” if the single owner “gets into trouble.”

An LLC company structure will protect the company from a member’s liabilities. The LLC can even be a “single member LLC” and the single member won’t lose control over the company in most states, even if he or she gets into trouble.

That’s a big advantage of the LLC company structure. It is important that you know about the double asset protection of an LLC.

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08 Jan 2011

LLC Incorporation – How to Do It

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So you have been searching for LLC corporations, LLC incorporating or how to incorporate LLC and you have not been finding much information. There isn’t much available on LLC corporate information because an LLC is not a corporation. It is a company.

The letters LLC stand for Limited Liability Company. While there are some similarities between a corporation and an LLC, it is important to recognize that LLCs and Corporations are two different types of business entities.

Because LLCs and corporations run businesses and offer liability protection there are a number of similarities between the two. Both entities are organized by written documents filed with the state.

The corporation has Article of Incorporation, while the LLC has Articles of Organization. Both organizations are then operated from written documents. The corporation is run from it’s Bylaws while the LLC has an Operating Agreement. The corporation has officers and directors while the LLC has members and managers.

Both entities require some maintenance, including the requirement that you hold company and corporate meetings and keep minutes. All business resolutions for both entities need to be documented.

The corporation has a strict tax structure. One of the first things we learn in business law is that the owner of a corporation is taxed twice, once at the personal level and once at the business level. On the other hand, the owner of an LLC can choose how to be taxed. This choice can be very beneficial.

Limited Liability Companies (LLCs) are probably the most flexible asset protection entity of the two. They give you much better asset protection than a corporation. They give you accounting options a corporation doesn’t even approach. The LLC is a lot easier to maintain than a corporation.

There are reasons to use corporations, but your first thought when you think business entity should be “LLC.” Just take time to study it out. It is important to understand all the disadvantages, as well as the advantages, because you need to know the whole truth about any legal structure you use.

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