But my attorney says i should become an lLC because it removes the personal liability. I don’t know how many times I have heard this from my clients. So, what is the truth?
the answer is regardless of the type of business you choose, you can still be personally sued! Now, I am not an attorney and you should definitely consult with an EXPERIENCED attorney for your situation, however, if you’re careless acts, errors or omissions injure someone even though it was done under your lLC, good chances are you are going to be personally named in any lawsuit and will be held liable as the owner of the LLC. Injury is not just bodily injury.
While you do receive some liability protection for your lLC, it does NOT automatically protect you personally. For example, if the LLC signs a contract with your electric company and your business closes, your personal assets will be shielded from liability because you signed as the LLC. On the opposite, you are in a car accident and the person who hit you says “you cant dues me this is a business car!” you can almost guarantee our justice system is not gonna let that fly. Again, you should ALWAYS seek advise from a competent business law attorney. and you should ALWAYS carry business insurance to protect you.
Another misconception about forming an LLC is that it will save you taxes. LLC’s are pass-through entities (disregarded entities if you are a single-member lLC) and it is NOT going to save you anything in taxes. In the eyes of the IRS and with regard to taxes, the LLC doesn’t even exist. your tax liability would be the same as if you are a sole proprietorship or a partnership. You are issued K-1’s (if Multiples members) and the income (or loss) is reported on your personal tax return and are subject to self-employment taxes, however, Since they do not pay taxes on the business level, this DOES prevent double taxation of the company and its owners.
Additional benefits of forming an LLC:
Members of an lLC have the luxury of having flexible management options since they do not have a formal management structure or Board of directors
In some instances, they have fewer state imposed compliance requirements.
LLC’s can establish their own business credit.
LLC’s can set up retirement accounts to reduce or defer taxes.
LLC owners can pay themselves a wage, which is considered an operating expense and can be deducted from the company’s profits.
All in all, if you are a sole proprietor and you are looking at changing to an lLC, there are a few advantages to doing so….. A better option may be to look at converting to an S or C Corp. But we will discuss those items another day.
https://wcginc.com/business-formation-services/business-formation/
https://www.180lawco.com/fact-or-fiction-6-super-common-llc-myths/