Conversion of your business into a Limited Liability Company could be just the thing to get you climbing the ladder of success. In recent years, all 50 states have adopted limited liability company (LLC) laws, offering a very attractive new alternative that every small business, including the smallest home-based businesses.

What, you may wonder, is this LLC entity?
Simply put every state has, in recent years, now passed laws creating a new type of legal entity called a "limited liability company" (or LLC). These new entities, which resemble (and are usually taxed as) partnerships, offer the advantages of limited liability, like corporations. The new "limited liability companies" have, in effect, done away with the need to have unlimited liability for ANY of the owners of what is, in essence, a partnership form of business organization.

Major benefits of LLCs over the traditional business entities that were available up till now (corporations, partnerships and sole proprietorships) include the following:

• Owners of an LLC have limited liability; and they do not lose their limited liability if they actively participate in management.
• Now that the IRS "check-the-box" regulations have become effective, a business that is currently a sole proprietorship is also able to change to LLC form and thus obtain limited liability, with no tax consequences or added tax compliance requirements of any kind, as the IRS will now, in effect, ignore the existence of the one-owner LLC for tax purposes.
• An LLC provides limited liability to its owners, but taxable income or losses of the business will generally pass through to the owners (but any such losses may not always necessarily be deductible, due to the "at-risk" and "passive loss" limitations of the tax law).
• LLCs are (generally) simpler entities to maintain than corporations. An LLC is required to file its "articles of organization," which are similar to articles of incorporation, but the operational similarities tend to end there. It is also a good idea for an LLC to have a written operating agreement, which spells out how the company is to be operated, much like a partnership agreement. However, from that point on, the LLC is governed by its operating agreement, and there is generally no need for any of the tedious corporate formalities such as minutes of meetings, resolutions and annual meetings of the shareholders ("members" in the case of an LLC). This operating flexibility, in addition to freedom from corporate level income tax (except in the few states that impose state income taxes on them) makes the LLC a highly advantageous form of doing business for the closely-held or family-owned business.

Professional firms will often find it preferable to operate in the form of professional corporations, and S corporation status, rather than as LLCs, since all the earnings of a professional LLC will generally be subject to self-employment tax. If operating as an S corporation, only the salaries paid will be subject to FICA taxes (at the same rate as self-employment tax), and any remaining profit that is earned by the S corporation will be subject only to income tax, not to self-employment or FICA taxes, provided that the amount of salaries paid is not unreasonably low and subject to treatment as tax avoidance by the IRS.

The future looks bright for LLCs. Gold Coast Professional Services anticipates a continued boom in their popularity in coming years.