US Supreme Court Counselor

Limited Liability Company or Incorporation? Clients often call me to find out whether it is better to form an LLC or Inc. They want to be certain that they will get all of the good asset protection and tax advantages they can for their company. As with everything, there are several important considerations that you should take into account to get the right structure for your business.

Business Structuring

There are many types of business structures available. There are sole proprietorships, partnerships, LLC, LLP, C and S Corporations. The best way to decide which business structure you should form is to consider asset protection, taxes and ease of management. In the LLC Wizard there is a company decision chart to help you make certain that you make the best choice. Generally an LLC works great for most people. It is quicker to form and easier to maintain an LLC and you get just as much asset protection.

Another bonus is that you can elect how you want to be taxed. The IRS lets you choose. The best part of the LLC is the double asset protection you can get if you make the correct choices in your structure and choose the correct clauses in your documents. Make sure you have a good Operating Agreement. This is the heart and soul of your business.

In the last year the IRS has been targeting S Corp owners who take low salaries so they can receive the bulk of their income in corporate dividends, which are not subject to payroll taxes.  These cases are being found and prosecuted.  The Courts are standing behind the IRS and ruling that this is indeed a tax sham.

The case cited is an accountant who took a $24,000 a year salary.  His share of the annual profit was $200,000.  The court agreed with the IRS that his pay was unreasonably low.  His salary was reclassified and he was hit with payroll taxes and penalties.

Don’t be a turkey! If you have an S Corp and your salary is unreasonably low for 2011, it may be a good idea to reconsider this plan and take a larger salary.

Asset protection is a double swinging door.  Many people tend to plan their asset protection from only the business side, to protect their personal assets if their business fails.  This is a mistake.  Of course it works just fine when your business gets in trouble.   It blocks creditors coming through the door after you and your home and savings account and other personal assets.  But what about when you get in trouble personally?  Say you are in an accident or suffer an illness and you can’t pay your bills.

When starting a business, everyone wants to structure it to protect, their house, summer cabin, bank accounts and retirement nest egg.  But if they thought about it they would realize that their business is their most valuable asset.  It is basically the source of all their assets.  When you consider asset protection you should see the value of both your personal and business assets.  Even though business owners do tons of “asset protection” trying to protect their personal assets, they need to protect their businesses too.  Many businesses are lost when a personal disaster strikes.

Business structuring using an LLC has double asset protection. Like a corporation, an LLC has all the aspects of the corporate shield, but it also has partnership charging order protection.  This gives an LLC a distinct advantage.  The LLC protects from both sides of the door.  You may be wondering, “If LLCs are so good why are corporations still the most common business entity?  It is because LLCs plus charging order protection are “relatively” new.  Corporations have always been the “standard business entity.”  People have heard of them and so they use them.   Still when you do the research you will probably find that an LLC is the best small business entity.

The question I ask is “Does this mean these self employed are barely making it or are they making more than the rest of us because they are getting really great tax benefits?”   I would like to think it is the later.   I have always said that your own small business is your best tax deduction.  It looks as though these figures bare that out.

The parents who had a six week old infant and a small child aren’t getting much sympathy. They have become a target for late-night jabs from television hosts like Jay Leno and Chelsea Handler.

Laugh if you will but the family can act as a symbol if you will of the importance of being prepared, before you enter a maze.

In the maze of business start-ups many get trapped.  More than 50% of small businesses fail with in five years of formation.  The correct legal foundation could make all the difference in your business.  What if your have the proper liability shield so that you can deflect a lawsuit?  What if you have structured your business for the most favorable tax climate?  These questions can be answered to your benefit and could save your business.  In the LLC Wizard, it is all there for you.

Usually it is easiest and least expensive to form your LLC in your own state.  You can act as your own agent and most states have made their LLC law competitive.  Florida recently had a case where a single member LLC was disallowed by the court to satisfy a claim. If you can’t form a multi member LLC in Florida you may wish to consider another state.

Does an LLC need a registered agent?

Yes you need a registered agent for Your LLC.  If you live in the state where you formed your LLC you can act as your own registered agent.  It is a good idea to be your own agent, because you do not have to pay someone to do it.  If you are acting as your own agent be certain to answer all legal correspondence by the required date or you could have serious problems.

You probably can.  First look at your LLC Operating Agreement.   This document will govern whether or not you can add new members and the procedure to do it. Usually, a vote of the Members will be required to admit a new Member and the document will require that a certain percentage of the current LLC members must approve.  Make sure all requirements set forth in the LLC Operating Agreement are met and documented.

If the new member is investing a substantial amount of money or other property you should check with an attorney to determine if there are any securities related obligations.

Can I start an LLC and get rid of some liability problems?

The answer is “No.”  It seems that I get this question regularly from people who are dealing with financial or legal problems.  Unfortunately, the liability protection from an LLC begins at the moment it is created.  Forming an LLC for your business activity is always a good idea and don’t wait until a lawsuit is pending. If a properly maintained LLC is in place it can minimize future liability.

Attorneys are doing to give you a lot of different answers to your questions, leaving you more confused than when you went into the office. The reason being is they each have different areas of law, or specialties. Check out some of the most common tools and how to use one tool to get three very important things done.

It is difficult to protect your home with an entity, because as soon as you take it out of your name you loose many homestead and tax advantages.  If you are married you can get some protection by putting your home in your spouses name, however, often a good insurance policy is the best protection.  An LLC is a great way to protect rentals from liability.  They are great liability shields for rental properties.  If you manage your own properties, it is a good idea to form a management LLC.