LLC liabilities- Info

Is an LLC the Right Choice for your Business? State laws vary as it pertains to filing requirements and fees. You must refer to the laws applicable to the state or states you are doing business in. This article is intended to provide the tax ramifications at the Federal level but I must include some potential state issues as well. In this case I am using NYS in my example to point out the additional cost associated with forming an LLC. Each state may or may not be similar to NYS so I recommend that you refer to the state or states you are doing business in. Have a look at LLC liabilities.

LLC’s are one of the most frequently used business entities. Most of the time the business owner forms the entity without consulting an experienced business or tax advisor, often with dire tax consequenses. Even the NYS Department of state Division of Corporations Website mentions this fact “Therefore, it is advised that when deciding which entity to establish, the business situation be analyzed with a mindful eye on the tax implications.

I underlined the last sentence because it is the focus of this discussion. The fact of the matter is that a multitude of LLC’s are being formed for the wrong reasons with dire consequences for the businesses and their owners who will bear the burden of this decision for years and possibly decades to come. For some small businesses it will literally be the difference between success or failure.

I will explain what an LLC is and and more important, why it is inappropriate for most of the small and micro business entities being formed. We will also discuss alternatives to using an LLC as a business structure and potential solutions for existing business entities already formed and doing business as an LLC.

What is an LLC? Before we can even get into why the LLC structure is wrong for your for your business we should look into what an LLC actually is, how it came about and what purpose it serves.

A Limited Liability Company (LLC) is a hybrid of a partnership and a corporation. LLCs closely resemble and are taxed like partnerships, but, like corporations, offer the benefit of limited liability.

An LLC is formed by registering a unique name through the Secretary of State in the state where the business is headquartered. Each state has its own specific rules regulations and fee schedule for forming an LLC. The cost of forming an LLC is significantly more expensive in NYS because of the requirement to publish a notice of intent. As I stated in my opening paragraph state laws vary on filing requirements and fees.