As a community service, the Law Offices of Karen M. Riggio, LLC publishes a complimentary e-newsletter designed for business owners and independent contractors. Each month, we offer valuable tips and practical, real life answers to today’s common contract issues and collection problems. Feel free to e-mail us your suggestions for future articles.

Karen M. Riggio

The Limited Liability Company (LLC) is a great choice for entrepreneurs who want to move beyond the sole proprietorship. Accepted in all 50 states as a legal entity, it provides tremendous flexibility for business owners looking for the asset protection provided by a corporation and the ease of operation provided by a partnership. This month, I would like to share the major advantages of forming an LLC.

• Liability Protection
  LLC laws do not allow a lawsuit to be filed against a member of the LLC for the liabilities of the LLC. Therefore, with an LLC, the member's personal assets are safe unless he/she personally guarantees a debt.

• “Pass Through” of profit and loss
  An LLC offers the benefits of a regular corporation without separate taxation. All the profits and losses of the LLC are taxed on the member's personal income tax returns. So if you have losses in your LLC, you can claim it against your personal income on your individual 1040. It is very advantageous for a start up business.

• Ability to easily change to another form of entity
  It is easy to change your LLC to another form of legal entity. If you are starting a business, it may be beneficial to start a company as an LLC (and write off the initial losses from your personal income) and change to a C-Corp when the company becomes profitable.

• Flexibility while allocating profits or loss
  The members of an LLC can allocate ownership as well as profits and loss among the members anyway they choose. With a Subchapter S Corporation, you are restricted to how profits and loss are distributed among the owners and the type of losses you can pass-through to the owners. In the case of a C- Corporation, the profits and loss of the corporation cannot be allocated among the shareholders.

Whether you are starting a new business or looking to protect your assets, contact our office to learn more about forming your business entity. It is extremely important to pick the right business structure and properly set up your new company from the beginning. Failure to structure your business correctly from the start can leave you personally exposed to litigation and possible tax penalties.