In today's video
I am going to talk about why the LLC is the most common
business structure for entrepreneurs
So, you probably clicked on this video because you want to learn why an LLC
is the most common business structure for entrepreneurs
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I'm Andrew from Mollaei Law, where we help entrepreneurs
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So let's get straight to it
Why is the LLC the most common business structure for
entrepreneurs?
First time
business owners sometimes struggle with deciding on how to structure their
business
A sole proprietorship is the most common and simplest structure selected to
start a business
Now
let's talk about why the LLC is the most common business
structure in order to separate your personal from your
business
The LLC business structure combines a pass through taxation of a partnership
or a sole proprietorship with the limited liability of a corporation
creating the best of both worlds for business owners
First time business owners often recognize the benefits of this business
structure, such as tax advantages, business deductions
personal liability protection, income tracking
and the fact that LLCs don't pay business taxes
now
self-employment and LLC limited liability companies have
many benefits
Many small business owners find that LLCs are easier for taxes
income tracking, lawsuits and business
Write-offs LLCs do not pay taxes
As entities LLCs are passed through structures
which means that taxes are sent instead to the members
The owners need to pay all the taxes, the LLC profits
and consequently automate quarterly payments
The owners should pay normal income tax as well as self-employment tax
It is important to ensure that all checks for the LLC are made out to the
LLC name for expenses
Checks should be written from the LLCs account
It is important to track income for preparing the LLCs profit and loss
statement. The owner can pay themselves any time
The owner can just write a check from the LLC to themselves
The two tier tracking method permit, strong business accounting
as well as unlimited payments to themselves or other
LLC members. The company
accounting ledger tracks, all LLC expenses
an LLC
can write off many expenses that an individual can do so
themselves
However
the owner can't write off their own car on their taxes. Rather
the LLC can own a car. The LLC can depreciate it yearly end
therefore lower it's reported net income
When the income passes through to the members
the car expense will already be deducted
A self-employed person needs to work hard to build their own assets
And those for their family
the LLC owner has no personal liability for the company mistakes
Liability means being legally responsible for a matter
A LLC is a private legal entity in the US that
makes us corporate limited personal liability
A limited company such as an LLC is a private legal entity in
the US that mixes corporate limited personal liability with
partnership and sole proprietorships simplified taxation
The LLCs owner put the company's profits and losses on their individual tax
returns
That's what makes it a pass through taxation entity instead of an LLC
corporate tax return, LLC owners are called a members
The LLC can be owned by just one person
two or more people by a corporation or by another LLC
The LLC is members are not held personally liable for the businesses
obligations
If the business cannot pay its obligations such as rent
loan, payments, business suppliers, et cetera
creditors can only pursue the LLCs assets
The LLCs members risk only losing the capital
They have put into the business
protecting the personal assets such as their home, car, etcetera
It is important to note that LLC members are not given total protection against
liability. LLC members can be held personally liable
just like corporate shareholders. Under certain circumstances
LLC members can be held liable for causes, including a member
giving a personal guarantee for a business loan or debt
a member directly and individually damaging a person or harming a
person
A member doesn't submit taxes that were held for the employee's wages
Another example is a member purposely does an illegal fraudulent or reckless act
that harms the LLC or another person
As long as you avoid these
the LLC will provide you with that personal liability protection
now
and LLC assets usually can't be used by creditors for a members
individual debts, depending on the state potential creditor actions
a charging order
And basically a charging order is a court order that the LLC to
directly pay a credit toward the members profits to satisfy a debt
Another thing is LLC interest for closure
a member's interest in the LLC can be foreclosed upon to satisfy a
personal debt with a creditor
Another example is order for dissolution
a creditor can get a court order
dissolving the LLC
The member's income from the dissolution and sale of the company's assets is
sent to the creditor for personal debt
the member's income from the dissolution
and the sale of company assets
is sent to the creditor
for personal debt
So a charging orders purpose is to permit taking a member's income
while protecting the LLCs other members
There is no need for the charging orders protection
When the LLC is owned by just one member
some courts in various States have held that single member LLCs aren't
automatically protected by requiring a charging order
Therefore
creditors can foreclose on a member's interest to fulfill personal debts
It is important to know the members of an LLC may be held personally liable for
the debts and acts of the business
If the member is proven to have treated the LLC as an extension of their
personal affairs, instead of as a separate to business structure
if a court finds that a member
is attempting to hide their personal activities
and that's behind the limited liability of the business
then the member may be held personally liable
now for an LLC
to be perceived as a separate legal entity
the members should act fairly and legally
They should not act in any way
or they should not attempt to misrepresent or distort a material facts
related to their finances to third parties
It is important that members properly fund the LLC
It's also important that they allocate enough capital to keep the business liquid
Now
as a member
you going to want to make sure to manage the LLC finances separately
from personal
additionally members will want to operate with a federal
employee identification number
rather than a personal social security number. This is known as an EIN
The way that members want to conduct a business is through a separate business
bank account
It is important for members or a member to generate an operating agreement
which addresses the terms that the company will follow regarding oversight
governing and long-term operations in short
in LLC may be your best option if you are a
business owner
If you would like to learn more
about how an LLC will best serve you and many benefits that you may receive
click the link in the description box below to book your free consultation with
a professional
who will be able to address
the many benefits that an LLC offers you
If you happen to have a question in regards to anything that I talked about
in today's video
click the link in the description box below to book your free consultation with
a professional who will be able to provide you with more
information
as to why in LLC is the most common business structure for
entrepreneurs
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If you would like to continue learning more about LLCs businesses, online businesses
go ahead and watch one of these videos