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Monday, November 10, 2008

How To Incorporate Your Small Business

If you are operating more than one company, it’s a good idea to use separate LLCs for each one. The reason: Liability against each company becomes self-contained. If there is a problem at one location, your other companies are fully protected and are not impacted by actions against the property experiencing trouble.

If your companies happen to be in Delaware, Iowa or Oklahoma, state law there permits you to use a single LLC umbrella, called a series LLC (also referred to as a cell LLC). In this type of organization, the debts and liabilities of each LLC remain separate from those of the other LLCs. But having a master LLC makes things administratively easier and less costly. Even though each LLC runs separately, initial filing fees may be lower and only a single tax return is required for the umbrella LLC. You may recognize that a company is owned by a series LLC if it is titled “ABC Property LLC, Series X.”

If you already own a business, and are thinking about buying property for the business--perhaps a professional building from which to operate--watch out. You can, of course, have the practice buy the property, but this usually isn’t a good idea. It is advisable for you to buy the property yourself, using an LLC, and then lease it to your practice. In this way, you retain maximum flexibility over buying and selling the property. What’s more, if there are any legal actions against your company, you can better protect the separate property owned by the LLC. This same strategy works if your business is, say, an incorporated manufacturer that wants to own the plant or a retailer in a strip mall.

LLC benefits....

When it comes to managing your property and running the LLC, this type of business organization offers optimum flexibility. You can operate the business yourself, hire a professional manager or leave things to other members. Choose the management arrangement best suited for your personal situation.

LLCs give you flexibility when it comes to co-owners. You can also partner with anyone you choose and use an LLC for your business. For example, you might have a foreign investor in your company, something you couldn’t do with an S corporation.


What type of business entity is the best choice for you for real estate investments? A corporation can offer you personal liability protection but won’t necessarily give you any tax edge. A partnership may offer tax advantages, but won’t protect you from personal liability. A limited liability company, or LLC for short, is a hybrid entity that combines the best of what a corporation and a partnership can offer and may be the perfect solution for you.

With an LLC, no matter what happens to the property, your personal assets, including your home, cannot be touched by creditors of the LLC. And you not only gain personal liability protection, but also important tax and other advantages.

The LLC gives you a flexible way to protect yourself as if you were a corporation but you get better tax treatment.

Resource links:

* Bizfilings

* Business Tool Kit

* Time To Start-up


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