An LLC is an attractive option for many business owners looking for a simple structure for their company and a way to protect the members from personal liability. But it’s important to know that an LLC doesn’t shield you from ALL liability, and that there are other options that can offer similar protection. Remember, too, that LLCs require an annual investment in the form of taxes and fees.
Limited Liability Does Not Mean No Liability
Yes, it is true than an LLC offers liability protection for its members. That means that your personal assets won’t be held liable for the company’s debts. However, this protection isn’t absolute, and in some circumstances you may still be on the hook.
You may be held responsible for torturous or malpractice acts that causes the debt. Non-LLC assets can be attached if:
- A member of the LLC caused a torturous or malpractice act
- A member was negligent in hiring someone that caused the act
- A member was supervising or project managing the person that caused the act.
It’s important to know that even if you may not have caused the act, you may still be responsible for someone who has.
Insurance Offers an Attractive Alternative
If you are a member of an LLC that owns property, lenders may require for you to have insurance on that property. What many don’t know is that for relatively low price, you may be able to purchase a substantial amount of coverage. This could give you the protection you are looking for, and in most cases is cheaper than the annual taxes and fees associated with an LLC.
LLCs Require an Annual Tax and Fee
As an owner of a California LLC, you are required to pay an $800 annual minimum tax to the California Franchise Tax Board. Also, you will be subject to an additional California LLC fee if your LLC has gross receipts of more than $250,000. Each state treats the taxation of LLCs a little differently. The tax depends on where the LLC is conducting business and where the owners are residing. Something to weigh if you are considering getting equivalent protection in the form of insurance, instead.
Uncertain of Whether to Form an LLC?
An LLC still might be right for you, but in it’s best to consider all the variables. In order to best evaluate your options, it’s wise to seek professional guidance. PDM’s tax experts can help advise you on the best course of action for the structure of your company. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.