When an entrepreneur opens a new business, there is a great deal of risk that comes with this new business venture. The business could eventually fail, and all of the hard work and money that the entrepreneur put into the venture could be lost. Because of this potentially enormous amount of risk, many entrepreneurs are interested in protecting their own personal assets when starting a new business. One of the best ways to protect personal assets is to set up a limited liability company or LLC. Why would a business want to become an LLC in California?

Limited Personal Liability

When a business decides to set up a limited liability company, it can limit the personal liability of the owner of the business. If a business is run as a sole proprietorship, it means that the owner is putting his own personal assets at risk. If a lawsuit is filed against the business, the owner may have to give up his house, cars, and other assets to satisfy a judgment. 

When a business decides to become an LLC in California, the owner is no longer risking his personal assets for business matters. This means that if a lawsuit is filed, the judgment can only include items that are owned by the business. If the business racks up debts during the course of operation, the owner also cannot be held personally responsible for these. The only exception to this is if the business owner decided to personally guarantee the debts when they were originated.

Less Formality

Although the LLC does provide limited liability protection, some other business structures do this as well. For example, both the C corporation and the S corporation provide limited personal liability. However, both of these business structures come up a lot more formality than the LLC. The business owners do not have to go through mandatory corporate board meetings, and take minutes of the meetings. They don't have to set up a board of directors or bylaws. With the LLC, the business can be run simply and effectively without all the formality.

Does it Offer Unlimited Liability?

Even though the LLC does give the business owner personal liability protection, this protection is not necessarily unlimited. If the owner of the business does something blatantly wrong or negligent, instead of just making an honest mistake, he could be held responsible. For instance, if he decides to defraud customers without giving them anything in return for their money, he could be held personally responsible. This should not affect honest business owners who run their businesses in a manner that does not involve blatantly misleading people. 

Pass Through Taxes

Another big benefit of setting up an LLC is that the taxes are very easy to handle. When the company makes any profit, that profit is simply passed on to the owners of the business. The business owners then pay the taxes on that income at the personal level instead of at the business level. This helps to eliminate double taxation, and it can also make the process of filing a tax return a lot simpler. Any profit or loss is simply added to the income of the business owner. 

Overall, there are a lot of benefits that come with becoming an LLC in California. The process to get started is simple, and it can take away most of the personal risk that comes with starting a new business venture.

Jordan McPelt writes about various subject matters including small business and llc’s. To learn more about small business or becoming an LLC please visit http://www.form-a-corp.com/