What are the benefits of an LLC?
I am operating a service business as a sole proprietor. I have no employees and I operate out of the house. No FF&E to speak of other than old computer, fax and printer. I plan on purchasing a new vehicle in the near term. The only assets the company has is me, cash on hand and receivables. The only officer would be my fiance. How would I benefit from a LLC and would that be better than a LP?
- RiddleMeThisLv 58 years agoFavorite Answer
"better than a LP" I assume you mean LLP (Limited Liability Partnership)
There are a few drawbacks to LLPs. According to the U.S. Small Business Administration, "LLPs are not recognized by every state and those that do sometimes limit LLPs to organizations that provide a professional service, such as medicine or law, for which each partner is licensed." In other words, you might not be able to form and LLP, depending on where you live and the type of business you are starting. Creating an LLP is also a more involved legal process than a general partnership. Disagreements between partners can also be a disadvantage."
As for LLCs, you usually have to file an annual "statement" with your state's Secretary of the State office. In MA it's $500 and I've heard it's $800 in CA. This is separate from income tax.
An LLC is a disregarded entity by the IRS. This means it defaults to either a sole proprietorship (single member) or partnership (2 or more members) for tax purposes unless the LLC "elects" to be treated as a corporation or even a trust (eg real estate development invstment).
If you are considering partnering with your "fiance" make sure you put in writing what her percentage of ownership is. Without, the default is 50/50.
NEITHER entity type will protect you from financial or criminal liability due to negligence or willful misconduct. Since you ARE the business, the courts may (and have) gone past this barrier.
- GregLv 58 years ago
An LLC is a separate entity from you individually. It is meant to protect assets in the event you are ever sued. If you are in business under your own individual name then all of your personal assets can be attached. With the LLC, only the assets of the LLC could be attached in a judgment. I agree with the prior answer on LLP. It is for professional organizations like doctors and lawyers.