In the United States, limited liability companies (LLCs) accounted for the majority of partnership returns (70.4 percent). LLCs have topped the number of partnership returns filed for the 17th year in a row. The total number of LLC members has surpassed 13.4 million.
Because the rules and regulations differ for each, how you structure your business is crucial in many ways. Those laws and regulations might have an impact on how successful (or unsuccessful) your company is. Everything depends on the structure, from liability issues to taxes to the amount of paperwork you must maintain each year.
It's also crucial to consider where you want to start your company. Each state's laws are unique, and those distinctions come with their own set of benefits and drawbacks.Below we will discuss the regulations and advantages for starting a business in the states of California, Delaware and Florida:
California
The type of your business will determine whether or not you need to form a legal corporation in California. However, you are in the midst of a big and diverse business ecosystem that includes both major and small businesses and organizations. You also have access to a huge labor force as well as a broad customer base that can work for you and benefit from your services and products when you opt for California LLC formation. There are some additional benefits to consider, as well as some disadvantages to be aware of.
Advantages
- California's taxes are low, and even then, the state provides a number of tax advantages to businesses to aid their expansion.
- California allows corporations to elect S corporation status provided certain qualifications are completed, which advantages the company because it is taxed similarly to a partnership.
Suggested video:
California LLC - Annual Report (Statement of Information)www.youtube.com
Delaware
Delaware is and has long been recognized to be a welcoming state for anybody wishing to start a business. Because of the friendly business climate, more than 67 percent of Fortune 500 businesses are incorporated in Delaware, even if they do not have a physical presence there. As of 2018, Delaware had almost 1.4 million legal organizations incorporated, which speaks a lot. Despite the fact that Delaware has business-friendly legislation, there are certain disadvantages to forming a company there. Here's a rundown of the advantages and disadvantages of forming a legal corporation in Delaware.
Advantages
- If you incorporate in Delaware but have your headquarters outside of Delaware, you do not have to pay state income taxes.
- Delaware is preferred by investors due to its pro-business atmosphere.
- Business affairs are overseen by judges who have specialized expertise and training in corporation law.
- At the moment of establishment, important information regarding officers and directors does not have to be provided.
- Unlike many other jurisdictions, Delaware allows for corporate and board structure flexibility and does not require residency, allowing you to run your business from anywhere.
Florida
In Florida, a limited liability company (LLC) is a versatile structure that has various advantages over forming a corporation. The liability of managers and managing members is limited when they form an LLC. The operating agreement can include organizational modifications, liabilities, voting privileges, structure, distribution rights, and more. A limited liability business does not have to go through the same formalities on a regular basis as a corporation and, like a S corporation, does not have to pay taxes.
Advantages
- Members (owners) of LLCs often benefit from pass-through taxation, which means they report their portion of the LLC's profit or loss on their personal tax returns. Any taxes owed are then paid on an individual basis.
- The number of members authorized in an LLC is typically unrestricted, and members have flexibility in organizing the company's management. Profit distribution options are also available to Florida LLCs. Unlike a traditional partnership, where the division is 50-50, an LLC has a lot more leeway.
- There aren't as many formalities. The LLC business entity is easier to administer because it does not require corporate minutes or resolutions.
Final Thought
Remember that if you form a company outside of your state, you must register as a foreign corporation in your home state or wherever you do business. Also keep in mind that you must follow the regulations of the state in which you incorporate, which may involve annual obligations and taxes. For example, if you plan to work and operate your business mostly in California, you should be aware that incorporating outside of the state could result in you paying double in taxes and annual fees, as well as having to file annual reports in two different jurisdictions.
