Limited Liability Company or an LLC this is a company structure where the owners are not personally liable for the company’s debts or liabilities. Limited Liability Companies are hybrid entities in that they combine the characteristics of a sole proprietorship, general partners with that of a corporation.
Each state has its own requirements for this type of structure and in many states if you hold a license like therapists, counselors, doctor or other licensed professionals then you are required to form a Professional Limited Liability Company instead of a LLC. The designation of Professional is intended to “tell the public” that is company is truly a professional standard and not some paraprofessional entity. For our purposes an LLC or PLCC are interchangeable.
LLC/PLCC are formed through the State in which the business is located and are not filed with the federal government. However, the IRS will still tax your income from an LLCs. An LLC/PLLC as a unique standing in the eyes of the IRS as they do not specifically acknowledge LLCs, thus the IRS will tax the company either like a sole proprietor if there is one owner or if there are multiple owners like a general partnership or corporation. LLC may elect to deem themselves as an S-Corp, check with your CPA or accountant to determine which is right for you.
The advantages of an LLC are many the main one is that in an LLC is easy and inexpensive to create a company structure, it requires less paperwork and running the company is easier. In a corporation you must have an annual shareholder’s meeting, a notice of that meeting must be timely, written documentation of board meetings and you are limited to the number board members you can have.
With an LLC a big advantage is that the owners (AKA members) are not liable for the debts or lawsuits that maybe filed against the company. Members are only liability for money they personally put into the company. Therefore, as a member you are NOT likely to lose your personal assets like your house, car or bank accounts should the LLC go into bankruptcy or lose a lawsuit. It should be noted however, that an LLC will not protect you from a malpractice lawsuit and you should always have malpractice insurance. Further, you must also show that you have standard account procedures and that you are not going bankrupt due to fraud. In the case of a fraudulent accounting you could be liable for the debts of the company. As general partners or a sole proprietor you are liable for your company’s debt.
Another advantage is that LLC’s do not pay taxes as a business entity. The profit or losses of the LLC are “pass through” to the members of the LLC. Which means that the tax is paid by the individual unlike a corporation where the company pays its share of taxes and the owners or shareholders also pay their share on their earnings.
Steps to becoming and LLC/PLCC
- Choose your business name.
- Check with the security of state to determine how you are to designate tour company. Here is a good website to look up your state.
- Obtain an EIN.
- Complete and file the Articles of Organization.
- Create an Operation Agreement detailing percentage of ownership, management, voting rights among other details.
- Obtain business permits and licenses as needed.
Formation of LLC or PLCC maybe a great option for you to create your business structure and keep the liability and cost down.
Check out also my video on LLC/PLLC.
If you need more information on this or other topics, please go to my website therapistbox.com.