What to consider when setting up an LLC in California
An LLC stands for limited liability company and is a popular type of business structure due to its flexibility, simplicity and the protection it offers your personal assets. An LLC acts as a legal entity separate from its owners keeping their personal assets secure in the event of a lawsuit or unpaid business debt. An LLC basically creates a corporate veil between what can be sued and your personal assets and life.
It is no wonder why LLCs are so common in the United States especially when someone is looking to form a business for liability protection and privacy reasons. Additionally they are also very easy to form and manage, making LLCs the preferred choice amongst small business owners, entrepreneurs and startups.
LLCs seem to be a hybrid between the complex corporation and the more straightforward sole proprietorship or partnership as they hold the best of both worlds. They are easier to set up and have a straightforward taxation process compared to corporations and they protect their members personal assets from the debts and liabilities of the business that sole proprietorships do not offer.
Setting up an LLC in California – What you need to know in advance
An LLCs profits are not taxed thus the owners only pay tax on the revenue once avoiding double taxation. An LLC has to file a separate tax return and the LLC’s profits are then passed through to each member and each member then pays taxes on their personal tax return at their personal tax rate which is usually substantially lower than being taxed at the business level. That is why it is called a pass-through taxation. Also an LLC can deduct expenses and provide owners with additional savings.
No Personal Liability
The members of an LLC will not be personally responsible for the debts or the liabilities of the llc. It is a business entity that provides limited liability for the owner as an LLC is a separate legal entity that can protect you from lawsuits and business debts. Basically an LLC creates a corporate veil that protects you and your assets from any liabilities and debts incurred by your business. In order to make sure that your LLC stays active and compliant with California state law you need to ensure that all of the annual reporting requirements are filed on time.
Forming and maintaining an LLC is an inexpensive and easy process that makes your business seem more real and official, creating more credibility for your business apart from the actual practical aspects that an LLC can offer.
Ensure your Privacy
An LLC needs to appoint a Registered Agent to handle all of the paperwork and make sure that the annual reporting requirements are met and the LLC stays active avoiding any possible problems and dissolutions of the business. If you want your address and name to remain private you should consider appointing a professional registered agent in the state of California that will state their address on all legal documents keeping your personal details private.
Adhere to your Operating Agreement
In order to ensure that your business is operating according to the Operating Agreement you need to create this document that is a contract intended for internal use that states how your company will operate. It further establishes your LLC as a separate legal entity and protects your LLC from anyone that wants to “pierce your corporate veil” if you don’t operate according to your Operating Agreement. It states how many members the LLC has, what their roles are, how they vote, how profits and losses are distributed and should be updated when any members change or new members are added.
If you want to learn more about how to set up an LLC in California, TRUiC offers an extensive database of knowledge on the subject, helping you through the formation process with their step-by-step guides and the formation services that they can recommend if you wish to hire a professional to form your LLC for you.