US LIMITED LIABILITY COMPANIES (LLC)

A good business plan is only the first step in starting your own company. Once you have your business strategy laid-out, it's time to select the legal structure under which your business will operate.

Many different legal structures exist for businesses. These include corporations, limited liability companies (LLC), sole proprietorships, partnerships, and limited partnerships. You should select a business structure specific to the business you plan to engage in and the types of products & services you intend to offer.

LIMITED LIABILITY COMPANIES (LLCs)

Considered by many to be the best of both worlds in a business arrangement, a limited liability company combines the tax simplicity of a sole proprietorship with the legal protection of a corporation. LLCs are commonly used for real estate ventures and family partnerships because of their tax advantages.

An LLC is not a separate legal entity, so profits (or losses) from business are reported to the IRS through the owner's personal income tax return. But LLC owners are insulated from personal liability with respect to business debts, claims and lawsuits - only the assets of the company itself are at risk.

The LLC is formed by the filing of Articles of Organization with the Secretary of State and publishing a notice. The operating agreement, which is similar to the by-laws of a corporation, sets forth the members' rights and obligations and the required procedures for the LLC's operation.

A properly formed LLC will be taxed as partnership but its members will enjoy limited liability like corporate shareholders. Members are not personally liable for the debts, obligations and liabilities of the LLC.

It's a good choice for a businessperson who has liability concerns, such as a store owner or small manufacturer, and wants to keep his/her personal assets completely separate from the business assets. And limited liability companies can be partnerships as well. In most states, administrative operations can be kept as informal as the owners desire; however, it's advisable to at least document important meetings or decisions for the protection of all partners.

TAX ISSUES

• LLCs, like partnerships, are not subject to income taxation. Gains and losses flow through the company and are taxed to or deducted by the members.
• LLCs have a number of tax advantages over corporations. For example, an LLC may make "special allocations" among the partners. A 20% member could be allocated 90% of the depreciation deductions attributable to a particular property.