How does an LLC work?

[CRCRFT78]

I understand this may be totally off topic but a friend of mine was trying to explain to me how he intends to use an LLC as a way to open up his automotive shop. Can someone tell me how this works, positive and negative. I remember Jeff Schwartz mentioning switching his company to an LLC maybe he can chime in.

Mods feel free to move or remove if this is inappropriate for Lat-g.

[ivmotor]

You need to check the laws in your state/county to see how they are governed. My business is an LLC because it offered the ability to change partners without the hassle of going corp. It (in NV) is taxed like a partnership so no double taxes.

[Track Junky]

A limited liability company combines elements of a corporation such as limited liability protection with the informal operating structure of a partnership. LLCs have a separate existence from the members who create and operate the business. Forming and operating an LLC will have significant tax and legal ramifications on the owners of the business.
Related Searches:
Corporation (http://www.ehow.com/search.html?rs=1&s=Corporation&skin=money&t=all)
Forming LLC (http://www.ehow.com/search.html?rs=1&s=Forming+LLC&skin=money&t=all)

Significance


A major advantage of operating as an LLC is the personal asset protection (http://www.ehow.com/about_7349679_advantages-disadvantages-limited-liability-corporation.html#) provided. The members and managers of a limited liability company have limited liability protection against business obligations and debts. This means if the company gets sued, the person or business that initiates the lawsuit cannot pursue the personal assets of an LLC manager or member as compensation for the company's obligation. Since an LLC has a separate legal existence, the company will accumulate its own debts apart from the members and managers of the LLC. An LLC member has liability only to the extent of their investment in the company




Read more: Advantages & Disadvantages of a Limited Liability Corporation | eHow.com (http://www.ehow.com/about_7349679_advantages-disadvantages-limited-liability-corporation.html#ixzz1ex6m9sfs) http://www.ehow.com/about_7349679_advantages-disadvantages-limited-liability-corporation.html#ixzz1ex6m9sfs

[GregWeld]

Just remember -- you will NOT escape any taxes.... and you will be required to file taxes etc - so this incurs additional costs. The big difference is that generally (note the "generally") you can escape personal liability.

I use LLC's for investing in apartment complexes where you have more than one investor involved. They're perfect for that type of thing because you can issue "shares" - on par where one dollar ='s one share - or 50K is one share etc.

There is also "S" corp - but those don't generally work very well for many reasons. They used to be great for setting up retirement plans because "corporations" could pound away far more than an individual.... but that's a whole different discussion.

[Scorpner]

As said, the differences between an LLC and a corporation include how you are taxed as well as specific laws which also depends on which state you form either one. (Some people/companies take advantage of other states for their more favorable laws.) Both offer protection from lawsuits with some exceptions where individuals make themselves personally liable. An example would be fraud or embezzlement etc. LLC’s are generally simpler for one or two people.

Take the time to research both and know the differences even though you’ll probably hire an attorney to have it done. The more you know the better off you’ll be aware of your boundaries and what you can and maybe what you shouldn’t do.

I like the Nolo Press for general legal info, then I’d see an attorney to follow through with it. That way you’re more familiar with what you want etc. I prefer books, but the link below should provide a lot of info. There’s also a section that lists individual states for a general reference.

http://www.nolo.com/legal-encyclopedia/llc-corporations-partnerships

Wiki has some good short reading as well with the LLC version listing advantages/disadvantages:

http://en.wikipedia.org/wiki/Limited_liability_company

http://en.wikipedia.org/wiki/Corporation

Hope that helps.

[GregWeld]

A couple things I thought about that is worth thinking about... and this is where the whole "I can escape any liability" statement is actually a "misrepresentation" of the facts...

With today's lending standards - many lenders will have you sign a personal guaruntee... Or won't lend to you at all. Remember that the LLC will have zero credit history etc. YOU do (or should). If your LLC has substantial assets (such as buying an apartment or a building etc) and you're putting up some big bucks (percentage) then that is a different story.

Remember that LLC stands for Limited Liability Company. Great if you have no assets and don't need to borrow any money. But lenders are totally NOT wanting to lend to something where there is no hook. It will protect you if you're a contractor - a lawyer - etc. But if you're opening up a "shop" and you want to sign a lease contract or have a line of credit... you (as stated above) may end up signing on the dotted line. It ain't 2007 anymore. :D

[ErikLS2]

I'm not a tax advisor but if the LLC is a single member then it is a disregarded entity for federal income tax purposes. This means that it doesn't need it's own separate tax return, it just gets the appropriate Schedule attached to your personal return.

Lets say you want to start a family owned business and keep your personal assets protected from liability and both you and your wife want to be owners of the LLC. Set up a family trust and then have it be the single member of the LLC and you'll have the LLC protection with a little less hassle of having to prepare an entirely separate tax return for it.

Of course if you're single and own the LLC alone, this applies as well.

http://www.irs.gov/businesses/small/article/0,,id=158625,00.html

[vdrivinmike]

To the OP:

If you want some professional advice, please send me a PM.