The Limited Liability Company (more commonly known by its acronym, LLC) is by far the most popular business structure. Only a decade ago, the LLC was the new kid on the block — untrusted and unverified. Luckily, that changed pretty rapidly — LLCs gained popularity and, within a short time, became firmly established in the business world. Since then, LLC has become a household term, and for good reason.
The LLC is a complete divergence from its predecessor, the corporation. While corporations have a fixed management structure, LLCs offer flexibility. While corporations have strict rules regarding owners and profit distributions, LLCs are adjustable.
While corporations are stuck with corporate taxation (or its limited variant, S corporation taxation), with an LLC you can select whichever form of taxation you prefer. The added flexibility of the LLC enables you to build a solid foundation for your business that works for your exact circumstances.
Great, right? Well . . . yes and no. With all the hoopla and the incessant commercials from filing companies, we all know how easy it is to file an LLC. However, very few folks can really explain how an LLC works, or why an LLC is right for your situation, or, even worse, how to actually structure it after receiving that one-page filing back from the state.
Aside from hiring a pricey attorney (not an option for most people), the majority of your peers don’t know how to do simple things like issue the ownership properly or formally agree on what happens if one of the partners wants to leave.
The LLC is a powerful tool, but if you don’t know how to use it — how to build that crucial foundation that will support your greatest potential — then it really amounts to nothing more than the piece of paper on which your formation document is printed . . . and possibly a few lawsuits along the way.