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LLC Corporate Structure

On Behalf of | Oct 9, 2023 | Firm News

Latisha always wanted to be her own boss, and she knew that she had some dynamite recipes for picnic foods that could make the core of a solid catering business.

She already was in the semi-business of barter, where she would make trays of food for gatherings of family and friends in exchange for favors and repairs around the house.

Latisha called in one of those favors when she asked her cousin, an attorney, what course she should follow to launch a real catering business. Fred pointed out the pros and cons of the basic ways to structure a business, including sole proprietorship, partnership, Limited Liability Company, and corporation.

After a long conversation with Fred over coffee and her signature cherry pie, Latisha decided to launch “Latisha’s Dee-Licious Lunches” as a Limited Liability Company, or LLC for short. That would protect her personal assets in the case she was sued for some disaster like an incident of food poisoning, yet it didn’t place too much burden on her as she wore all the hats of running the business.

Fred explained that operating a small business as a sole proprietorship — meaning that no formal business is established — exposes its owner to personal liability as well as business liability for any debts incurred by the business. All of her personal assets — home, vehicles, bank accounts, investment accounts, etc. — were at risk if she was sued for a business debt as a sole proprietor. A partnership spread the risk among others, but it didn’t provide significantly more legal protection than a sole proprietorship.

At the other end of the spectrum, a corporation offered extensive legal protection for her personally against lawsuits and legal claims by creditors, vendors and potential employees, but a corporation also came with many more reporting requirements and legal expenses.

The LLC presented just the right compromise, Latisha decided. As the most commonly chosen way to start a small business, the LLC limited her personal liability for business debts and potential judgements, but it wasn’t beyond her means to implement. Many of the requirements were simply good business practices, such as:

  • Set up a business checking account in the name of the business.
  • Run all business through the business checking account and do not commingle the personal and business accounts.
  • Keep accurate financial records for the business
  • Obtain commercial insurance for the business, especially for vehicles used in the business.

Latisha launched her lunch catering service and bought a delivery truck her first year with the profits, all under the protection of the LLC.

This blog is intended only as a general discussion of corporate structure and not as legal advice. Readers are strongly encouraged to seek the advice of an attorney before forming a business entity.