Alphabet Soup - LLCs and PLLCs
So much for Ss and Cs. Now, let’s throw some Ls and Ps into the soup.
Limited liability companies, or LLCs, are probably the most common business form filed today. My attorney, Mike, says he does 19 LLC filings to every one corporation filing. LLCs can be large or small. My friend Myrna, who developed a really cool toy, is an LLC. So is E*Trade. Limited liability companies are just that–they are not corporations.
As business forms go, LLCs are the most flexible form of business out there. The are a sort of partnership/corporation hybrid, with a bunch more flexibility thrown in. This flexibility makes them great for small business, as well as family-owned businesses. The term “limited liability” comes from their unique liability structure–not quite a corporation, not quite a partnership. And they can vary by state.
LLC ownership is composed of members. Sometimes, an LLC will have a managing member, or a board of managing members. Members own proportional shares of the LLC according to their membership interest, somewhat like shares. The more membership interest you have, the more voting rights you get. One person can be the sole member of an LLC.
With great flexibility comes great paperwork, and the backbone of the LLC is the operating agreement. All that flexibility is great, but because of it, a lot of thought needs to go into drafting the operating agreement. It sets out the rights, duties, ownership parameters, and responsibilities of the members. Thus, this document can be key to the success or failure of an LLC if more than one member is involved. For this reason, I don’t recommend grabbing a stock operating agreement off the Internet and using it without at least some review and consultation first, or unless you are an old hand at LLC operating agreements.
LLCs are just as flexible on the accounting side–an LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation. However, more flexibility leads to more choices, and you will probably need someone to help you figure out the best taxing strategy. Some states, such as Texas, are applying special tax structures to LLCs, basically for the privilege of letting you be an LLC. In addition to federal taxation, it might be a good idea to also check your state’s taxing structure for LLCs before you make any decisions.
A PLLC is an LLC, but its members must be professionals–doctors, lawyers, engineers, architects–those professions that require special licensing within a state.
As with C corps and S corps, the list of advantages and disadvantages is much longer, and I recommend that you get some help with all of it.
Next: sole proprietorships and the leftovers (always better the next day).
