Entrepreneurs in California who are looking to start their first company or who are interested in expanding their already existing business ventures must always decide on what type of operating structure they would like a company to use. There is no perfect organization but there can definitely be the right structure for a given business. One option available is the limited liability company, generally called an LLC.
As explained by NerdWallet, the LLC structure has become quite popular in the United States over the past several decades and that is with good reason. This business organization offers a great level of flexibility with essential asset protection. The business owners may be other business entities or individuals and there is no cap on the number of owners a single LLC may have. The daily management and operation of the LLC may be run by the owners, called members, or by third parties.
Members are provided protection from having their personal assets being liable for company debt in most cases. MarketWatch notes that the “limited liability” as per the name of an LLC can disappear if a company can be shown to have co-mingled business and personal transactions. Extreme care should be taken in managing expenditures and documentation to avoid this.
An LLC does not pay federal income tax. Instead, money flows directly to the members. Each member is personally responsible for reporting all income and losses on their own individual tax returns. This is one reason many companies have leveraged the LLC over the years.