Liability Protection: The Name Of The Game For California Llc

In case you and a few friends are preparing to set up your own business enterprise in California

, a limited liability company (LLC) may be what you need. A California LLC gives many small business owners security without worrying about hardships of running a - corporation.

An overview of LLCs

In an LLC, the persons who founded it acquire coverage from personal liability for any debts incurred by the LLC by means of its operations, just like with corporations. What this means is, usually, debt collectors are unable to just go after the personal properties and bank accounts of the members of an LLC.

Because a California LLC isn't a legal organization that could be subject to taxes by the federal government, it's thought of as a "pass through tax entity. This means the gains and losses of an LLC-type of business reflects on its owners' tax returns.

Furthermore, operating an LLC is easier than with a California corporation. LLCs do not have to create an executive board to run it and does not submit reports to several commissions. Nor does an LLC need to conduct yearly meetings. Rather, people who own an LLC share the management of their business.

Some LLCs designate one or more proprietors to manage the company while the others basically make money from the business enterprise. Within this manner of arrangement, only the named managers vote on decisions concerning the LLC and act as its agents.

The meaning of limited liability

LLCs, particularly in California, secure its business owners two ways. The first one is through debts incurred, and actions done, by the California LLC through the course of conducting business. This means a lender may take from the LLC's properties, assets, funds and even its insurance to get back its money or for reimbursement owed. What the collector cannot do, unless in very specific instances, is to touch the personal possessions of an LLC's business owners.

The one occasion there will be personal liability to an proprietor for an LLC's debts occurs when that proprietor agrees to personally guarantee a debt. When this occurs, creditors for that personal debt can go after your banking accounts or assets. This happens any time creditors demand more reassurance prior to issuing a line of credit to the LLC.

Another way a California LLC safeguards your interests is when an owner incurs a personal debt. Debt collectors (and the proprietor with the personal debt) can't usually charge this personal debt to the LLC. For example: one proprietor did not pay for the monthly bill for a private telephone line. The phone company or its collection agency can't pay off that owner's debts through the LLC's revenue.

One of the ways creditors can get past this defense is with a "Charging Order. This is a order given by a judge that directs the administrators of a California LLC to repay the collector with the debtor-owner's profits or revenue from the LLC.

Despite having a charging order, a collector can not be involved in the management of the California LLC. The charging order only permits them privileges to the money the debtor-owner would obtain from the LLC.

by: julius zadamczyk

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