Many new business entrepreneurs who are thinking of starting up a venture has to make the decision of being an LLC or not to be an LLC. This is a question many small businesses face. With an LLC the owners receive tax and liability advantages. LLC registrations have been on the rise, but, remember it is not for everyone.

A key decision for small business owners is whether to adopt the relatively new limited liability company or to set up under the more traditional form of a corporation, partnership or sole proprietorship.

Reading over the benefits of an LLC almost seem to good to be true. The owners or members have the personal liability protection that shareholders of corporations have, with less paperwork and regulations. This means if anything illegal, unethical, or irresponsible activity that happens, their personal assets are not on the line to cover the company’s business debts or legal claims.

If you pick an LLC, the owners also avoid double taxation on profits. This is a burden many shareholders face in running a regular corporation. Limited liability companies pass on the profits to their members, which in turn pay taxes on their individual income rates, as in a legal partnership. Limited liability companies have been legal in California since 1994, and according to the secretary of state’s office there are 409,619 registered LLC’s.

Registration under the limited liability company has jumped each year since 2000. More than 73,000 businesses registered under LLC last year after they announced that they could be set up by a single person. This is up from 31,000 in the year 2000.

It’s a no brainer that LLC’s are becoming the next big thing in businesses entities because of the combination of benefits offered.

Before you consider switching an existing business to an LLC, you need to take into consideration whether your business debts and claims could threaten your personal assets. Another is whether you have assets in the form of equity such as a house that could be at risk without the protection of an LLC. If you have any nervousness about your insurance coverage you could be a good candidate for an LLC.

People who aren’t good candidates for an LLC are existing regular corporations also known as C corporations. In California professionals such as lawyers and architects are prohibited to forming an LLC. Also if you want to raise money by selling stock or from venture capitalists an LLC is probably not for your business.

Despite the potential benefits of an LLC, they have to be weighed against the cost, especially if you live in the state of California. Even though it is a one page form and costs 70 dollars to set up a limited liability company in California, you have to take into account that annual fees and taxes could be more than 10 times that amount. There is a minimum annual tax of $800 which is payable to the Franchise Tax Board. Once gross receipts hit $250,000 more annual fees are to be paid which range from $900 to $11,790.

There have been many issues concerning the constitutionality of California’s LLC fees, but these issues are still being handled in the court rooms.

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