Answer:
A LLC may be right for you depending upon a few factors. First, if you business is the wrong type of business (i.e., a business that requires that you have a professional license), then an LLC is most likely not right for your business. In this regard some relief was provided in September of 2010, when then Governor Schwarzenegger signed SB 392 into law permitting sate contractors to operate as LLCs. However, doctors, lawyers, accountants and other professionals are still precluded from operating as an LLC.
The other main factor to consider is the gross receipts tax for LLC's. The California Franchise Tax Board imposes a tax on the gross receipts of an LLC. While all entities pay franchise tax, the LLC pays an additional gross receipts tax, which can make the entity disadvantageous from a tax planning perspective. You should confer with your tax adviser before you decide to form an LLC.
If you work in an industry that doesn't require a professional license (and this is a sticking point still because the law is not clear on what constitutes a "professional") and the gross receipts tax is not an issue for you, then you may consider operating as an LLC.
Perceived advantages of the LLC are its ability to operate informally (i.e., no minutes are required) and outside-in asset protection. Outside-in liability protection is legal concept concerned with protecting the LLC membership interest of a member who has a non-LLC related liability. The goal with outside-in liability protection is to keep the LLC membership interest protected from a judgment creditor through the collection phase of litigation. The nicest feature of the LLC, in terms of outside-in liability protection, is that the creditor of the member is left with a charging order remedy. This remedy can be a poison pill for the creditor and cannot be foreclosed upon in an involuntary bankruptcy filed against the member if the LLC is structured properly. There are obviously other factors that must be considered in any asset protection strategy and one shouldn't assume that they are safe by simply forming an LLC through self-help services.
Action Point: Don't go it alone in the asset protection planning world, call or EMAIL Mr. Edwards today to set up your consultation.
