Forming an LLC: The Benefits May Make it Worth Your While

The owners of two small CPA firms, both sole proprietors, recently came into our office to talk to us about forming a new business relationship. One owner had built a specialty working with contractors; the other was an expert in personal and business tax planning. They wanted to merge their companies, believing their specialties presented important strategic opportunities.

For these business owners, an LLC was the right solution

These owners were good potential partners: they shared similar backgrounds, values and a commitment to customer service. Each had built his business by being tenacious and working hard, and they were solidly positioned for continued growth.

Yet, they were wary of the responsibilities of forming a new business relationship that included a partner—this is a big step for any business owner and it requires careful consideration. We talked about the pros and cons of a general partnership vs. an LLC, and after some discussion, we decided that a LLC was the right choice for them.

The benefits of creating an LLC typically outweigh the disadvantages

LLCs provide limited liability protection to their owners who are typically not personally responsible for the business debts and liabilities of the LLC. This means that creditors can’t pursue the personal assets (home, 401ks, savings accounts, investments, artwork, etc.) of the owners to pay business debts. In a general partnership, owners and the business are legally considered the same, which means that personal assets are vulnerable.

While there are pros and cons of all legal business relationships, it was this issue of personal liability that helped these CPAs decide that an LLC was the right relationship for them.

Are you forming a new business relationship or interested in a Business Formation Package? Talk to us at California Document Preparers; we help our clients understand the pros and cons of LLCs, general partnerships, S corporations, corporations and sole proprietorships.