“How to start a limited liability company” is always the question. Maybe it is not the first question you ask, but you will probably get there. Deciding what business structure to use is one of the first decisions you have to make when you decide to start a business.
In the economic times we’re in, starting a business may be a great idea. In the beginning you may not have to worry about how to start a limited liability company. You may not want to start a limited liability company. I’ve seen people spend all their time, energy, and money on figuring out how to start a limited liability company, and they never make any money.
The easiest thing to do to start a business is just start making money. If you’re acting alone, you’ll be considered by the law and the IRS as a sole proprietorship. If you’re acting with one or more other people, then you’ll be consider a partnership, unless you file papers with your state and the IRS to say you want to be a limited partnership, corporation, or an LLC.
You’re reading this website because you want to know how to start a limited liability company, but you need to evaluate your decision to form an LLC, rather than just be “sold” on getting your LLC. Do you need a liability shield? Do you need an LLC taxation structure? Asset protection and tax benefits are the two main reasons you would want to know how to start a limited liability company.
How to Start a Limited Liability Company – Limited Liability Shield
You need to have a limited liability shield, if your business gives you any liability exposure. If your business is day trading stocks, buying real estate notes, or some other activity that really doesn’t give you any exposure and you’re acting alone, then you should probably just act as a sole proprietor – at least until you are making good money.
If you have a “partner” you should have a corporation or an LLC, because “partners” get you in trouble. In a partnership, each one of the partners can bind all of the other partners. Stated a different way, each one of the partners is jointly and severally liable for what each one of the other partners does. Never put yourself in a position where you are liable for what somebody else is doing. Partnerships are very dangerous.
Here’s the question: how much do you trust your partners? If you trust your partners 100% then the answer is use an LLC. (There may be other reasons not to use an LLC, but as far as the “do you trust your partners?” issue is concerned, use an LLC if you trust your partners fully.) If you have some “questions of trust” about your partners, then you should use a corporation. In an LLC, “accounting games” are easier to play. A corporation (taxed as either an S corporation or a C corporation) requires profit distributions to be made pro rata. In an LLC, distributions don’t have to be made pro rata. In fact, a minority owner can be cut out of the profits in an LLC a lot easier than they can in a corporation. One question you need to truthfully answer in the “how to start a limited liability company” game is how much do you trust the other partners? (In an LLC they aren’t partners. They are “members.”)
How to Start a Limited Liability Company -LLC Operating Agreement
Yes, the limited liability company operating agreement can lay out the accounting rules to protect the minority owners, but it takes some fancy drafting, and if you are going to be the minority LLC member, you’re not in a position to draft the limited liability company operating agreement. I guarantee you the forms you are getting off the word processor at your attorney’s office or off the net are not designed to protect the minority guy. You’re a lot safer to use a corporation, if there are any trust issues when you decide how to start a limited liability company.
How to Start a Limited Liability Company from a Negative Perspective
When deciding how to start a limited liability company, you need to take a negative view. What happens if your business fails? Nobody ever asks you to think about that. After all, your business is a great idea. Right? The fact is the vast majority of businesses fail. For just a minute now don’t think about how to start a limited liability company; think about how to close down a limited liability company. Unless you have a great reason – and it had better be good – you shouldn’t use a C corporation or an LLC taxed as a C corporation as your business form.
LLC vs C Corp
In fact, there aren’t a lot of good reasons you should ever use a C corporation for your LLC taxation structure. Unless you are planning to sell stock in the public markets, you have foreign owners, or the main reason for creating a company is to get some “fancy” benefit plans, when you are told to establish a C corporation structure, you had better get a third and fourth opinion before you actually file your tax structure selection.
If your business fails, there will be losses. In an LLC taxed under C corporation LLC taxation structure, all of the losses will be “trapped” in the company. Unless you have profits in the C Corporation or the LLC taxed as a C corporation, you can never offset losses. With an S corporation, partnership, or sole proprietorship LLC taxation structure, the losses in your business can be carried forward and offset against income you personally have in the future.
LLC and Personal Finances
Another issue you need to evaluate in the “how to start a limited liability company’ game is your personal financial situation. If you are facing a shaky financial future, you probably don’t want to use a corporation. Why?
Remember, one of the how to start a limited liability company questions is “what’s the need for liability shielding?” When the internet site or lawyer talked to you about how to start a limited liability company, they were concentrating on the “corporate shield” liability protection. The LLC will give you the same “corporate shield” as a corporation. Please note: the LLC “corporate shield” is the same no matter what the LLC taxation structure is.
Your LLC not only gives you the “corporate shield” that protects you and your personal assets from business liabilities, your LLC will protect your company from your personal liabilities. The LLC gives your company protection from your personal financial failures. Personal disasters such as divorce, bankruptcy, personal lawsuits, catastrophic illnesses, and other problems, can have disastrous effects on your business unless in your “how to start a limited liability company” process you have
beefed up your limited liability company operating agreement to protect the business from you.
Protection From an LLC
If your business is a corporation, it can’t be protected from your personal disasters. An LLC (no matter what the LLC taxation structure is) will give your business the best possible protection from your personal problems. The discussions you have had with your attorney and everything you have read on the net concentrate on the protections your business structure will give you and your assets. When you are deciding how to start a limited liability company, YOU must consider the effects of your personal problems on your business.
Yes, the LLC laws help protect your business from your personal problems, but the laws require you to “trigger” the protection the laws offer. How you write your limited liability company operating agreement will determine how much protection your business gets. The standard internet forms and the vast majority of lawyers (on the order of 90%) never even consider the provisions that have to be included in order to give your business maximum protection from your personal problems.
How to Start a Limited Liability Company The Complete LLC System
The LLC Wizard System spends almost an hour in module 6 going through the asset protection an LLC can establish. It is the ultimate how to start a limited liability company system. If you want to get an LLC with ten mouse clicks or answer three questions on the phone and have your attorney pump out LLC papers, the LLC Wizard System is not for you. But, if you learn how to start a limited liability company it can give you a ton of asset protection and tax advantages. Starting a limited liability company goes way beyond filing your Articles of Organization form and paying your state fees.
Remember, you and your family can use the LLC Wizard System to set up dozens of limited liability companies. The System is totally tax deductible, whereas your internet document costs and your attorney costs have to be “amortized.”