Pros and Cons of an LLC Designation in California


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As your LLC designation law firm can more fully inform you, starting your business as a limited liability company (LLC) can provide you and your fledgling enterprise with considerable benefits and protections

These benefits and protections, however, can come with certain “costs” – drawbacks of which you should be aware. It is therefore advisable to consult with your LLC designation law firm before you settle on the business form your new venture will take to ensure you select the form that will be most advantageous to you.

Benefits of Starting Off as a Limited Liability Company in California

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far, one of the greatest advantages that an LLC business form offers to the business owners is limited legal liability for the debts and obligations of the business. Unlike partnerships, sole proprietorships, and other certain business forms, the owners of a LLC are generally not responsible for the debts and liabilities of the business – even if the business folds or is not profitable. This makes the LLC a very attractive business form for owners and entrepreneurs who are concerned about putting their personal assets at risk – their cars and residences, for example – in order to start a business.

In addition, LLCs can be a good choice for some small one-owner businesses. The standard LLC forms available from on-line formation services can sometimes work for a really simple small business with one owner, but these forms are not designed to be used by for a real business with multiple owners. If your business is going to have two or more members (“owners”) the forms available on line and from on line companies providing formation services are not going to work for you. Although the documents required to start an LLC might appear to be minimal and might appear to be less complex than those required for another entity, such as a corporation, for example, use of such forms for a real business with multiple owners is always a mistake. The costs of correcting improperly drafted LLC formation documents is always much more expensive than doing it correctly from the start.

Drawbacks to Starting a California Limited Liability Company

There are some drawbacks, though, to choosing to form your new business as a limited liability company. Chief among these drawbacks is the strict compliance with statutory requirements that is required in order to form an LLC. Unlike other “traditional” business entities like partnerships, an LLC can only be formed if the business owners closely follow the statutorily-required procedure. If this is not accomplished – that is, if there is some requirement that the business owner(s) miss or a step that is not completed – then the LLC may be found not to exist and the benefits of an LLC that the owner(s) intended to realize may not be available. The LLC documentation requirements are similar to the requirements for corporations in this regard.

How To Avoid Mistakes During the LLC Formation Process

The best manner by which you and your fellow business owners can ensure that your LLC is formed properly is to partner early in the business formation process with a LLC designation law firm. With the assistance of an attorney from such a firm, you can rest assured that all requisite steps of the LLC formation process will be completed, that your LLC is properly structured and the formation documents are properly drafted and that you and any other LLC owners are able to take advantage of the LLC’s benefits.

ABOUT THE AUTHOR: Jim Gulseth
James H. (Jim) Gulseth was born and attended high school in Devils Lake, North Dakota and graduated with an A.B. degree from the University of California at Berkeley. He earned his JD degree at the University of California Hastings School of Law in San Francisco. He is a member of the Corporations, Business Transactions, Securities and Tax and Intellectual Property Sections of the State Bar of California and is a member of the State Bar of California, the Alameda County Bar Association, and a member and past President of the Eastern Alameda County Bar Association.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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