The Basics of Business Formation
Nov. 7, 2020
The structure of a business can be just as important to its success as what it does. Entrepreneurs in South Carolina should be aware of the differences between sole proprietorships, partnerships and corporations. One of the most common business structures used by Americans is the limited liability company, or LLC. There are several advantages to forming a business using this structure.
The Basics of LLCs
Limited liability companies are governed by state law. The way California handles LLCs is different from the way South Carolina does. But, generally speaking, LLCs serve to separate an entrepreneur’s personal assets from the business’s. This means that in the event of a business lawsuit or bankruptcy, the business owner can rest assured that their home and personal vehicle will be safe.
The parties that own an LLC are called members. In most states, LLCs can be owned by an individual, partners, or even other LLCs. There are few limitations on who can open an LLC. Usually, financial institutions like insurance companies and banks cannot be LLCs. But most other companies can be set up this way.
The way the federal government treats LLCs at tax time is determined by the IRS. Typically, the IRS will use its own criteria to determine whether an LLC is a sole proprietorship, a partnership or a corporation. Sometimes, the determination by the IRS does not agree with the way the founders see it. When this happens, they can appeal.
Consulting with an attorney might reduce friction with the IRS and position your company well when forming a new enterprise. Speaking with a lawyer experienced with business law is never a bad idea. Entrepreneurs may have great ideas but limited familiarity with business formation.