If you are thinking of opening a small business in California, but are not sure whether it is in your best interests to do so, you’re not alone. With the online retail world taking precedence over traditional retail, aspiring business owners have fewer incentives to open and maintain a physical storefront. However, there are numerous advantages to registering an LLC in The Sunshine State. This business structure has the perfect combination of persona liability protection offered to corporations while also passing through taxation of a sole proprietorship. Since a California-based LLC is considered to be a “legal person” in the eyes of the law, it is blessed with several benefits, from allowing you to open a bank account, enter into contracts to enabling you to hold assets, and more. The following article will break down the nitty-gritty for you.
Personal Liability Protection
The first clear benefit of registering an LLC in California is that you will be granted personal liability protection. Persona liability benefits would hold you personally liable for your company’s debts or legal obligations. If, for example, your LLC is sued, then your personal assets are safe and cannot be used as collateral to help pay off the company’s liabilities. In fact, one of the key reasons people form LLCs in California is to keep personal creditors at bay. In addition to protecting a small business from debt collectors, an LLC protects the business from its owners from any exposure to personal liabilities carried by other LLC members or owners that are incurred or unrelated to the business.Pass-Through Taxation
Another key advantage of registering an LLC in California is having the benefit of pass-through taxation. If you are looking to form an LLC in California, you should know that you will avert some of the drawbacks of establishing a corporation. Pass-through taxation basically means that your California-based LLC won’t have to pay taxes twice like most major companies that are obligated to pay taxes at the corporate level, while also paying taxes on a personal level. Once you register, the profits for your LLC will go directly to your personal income tax return, and you will only be taxed on a personal level for your businesses’ profits. For small businesses, this is a major advantage.
Taxes Specific to California LLCs
Setting up an LLC in California is a fairly straightforward process, one that also does not require a heap full of funds. However, there are taxes specific to this legal set-up that must be paid. These are annual LLC franchise taxes, a tax estimated fee built specifically around your business, and an LLC return of income. These are easy to understand, even by the least financially attuned individual amongst us. However, proper implementation of taxes when it comes to this rather intricate process requires quite a bit of expertise, and a skilled accountant well versed in the issues dogging the state will be in the best position to handle it.California may have some restrictions and strict regulations when it comes to establishing major business corporations, but its laws are very amenable to small business owners and entrepreneurs. Depending on the nature of the services you plan to offer, it helps to look into setting up an LLC, as it might be the right plan for you.
