Even though the special tax status of the S corporation does away with double taxation, it doesn’t have the elasticity of an LLC in distributing income to the owners. Various classes of membership interests are offered with an LLC, whereas you can only have one type of stock with an S corporation. In an LLC, a variety of individuals or entities may have interests, although the number of shareholders who can have ownership interest is restricted to no more than 100. C corporations, many trusts, LLCs, nonresident aliens, partnerships, or other S corporations may not have ownership of S corporations. It is…

If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC (Limited Liability Company). For instance, you might be concerned that your commercial liability insurance will not completely protect your personal assets from possible slip-and-fall lawsuits or claims by your suppliers for unpaid invoices if you open a storefront business that works directly with the public. An LLC gives you personal protection from these and other possible claims against your business. However, not every business can function as an LLC. Businesses typically prohibited from establishing LLCs are those in the banking,…

It is possible to have a written operating agreement in most states, but you are not advised to begin a business without one. The following are a few reasons why an operating agreement is necessary: By showing that you have been meticulous about organizing your LLC, it aids in guaranteeing that courts will be respectful of your personal liability protection. Rules that regulate how profits will be separated, the process for making major business decisions, and the measures for handling the departure and addition of members are established. It aids in avoiding misunderstandings between the owners and management over finances. It prevents your LLC…

It allows you to structure your financial and working relations with your co-owners in a way that best fits your company. Your co-owners and you determine each owner’s percentage of ownership in the LLC, his/her rights and responsibilities, his/her share of gains or losses, and what will become of the business in case one owner leaves.

Failure to have shareholder or director meetings can cause the corporation to be subject to alter ego liability, although this is not typical of LLCs in most states. For example, in California the failure of an LLC to have meetings with members or managers is normally not regarded as grounds for enforcing the alter ego doctrine if the LLCs Articles of Organization or Operating Agreement do not state the requirement of said meetings.

Even though LLC owners enjoy the benefits of limited personal liability for many transactions of their business, it is important to note that this protection is not absolute. The owner of the LLC may be held personally responsible if he/she: purposefully does something illegal, fraudulent, or clearly wrong that causes injury to the company or someone else is unsuccessful in depositing taxes withheld from employees’ wages, or personally certifies a business debt or a bank loan that the LLC defaults on personally and directly hurts someone, or acts as the LLC in the broadening of his or her personal affairs instead of an individual…