Your operating agreement is key to your LLC

Choosing the right legal structure for your new business can be almost as important as choosing the right business idea. A bad choice can expose you to too much personal risk.

One of the more popular structures for new businesses is the limited liability company, or LLC. An LLC is highly adaptable, and can be used for business entities small and large. Even Chrysler, one of the "big three" American automakers, operates as an LLC in the United States. Most LLCs are much smaller entities, however. It's possible for one person to form an LLC, although sole owner LLCs can face greater scrutiny when it comes to taxes.

One important difference between an LLC and a corporation lies in the tax status of the two business types. A corporation is taxed as a separate entity, but an LLC has pass-through taxation. This means the profits and losses of the LLC go directly to the owners, who claim them on their personal tax returns.

The key to any LLC's adaptability lies in its operating agreement. While corporations generally must follow more stringent rules under Massachusetts law, an LLC has wide latitude in determining how the business will be managed.

The help of an experienced business lawyer is essential if you are going to draft an operating agreement that will give your LLC room to grow and prosper. A good operating agreement will clearly state the duties and responsibilities of the owners, shield them as much as possible from liability issues and allow them to share in the profits. Talk to a business lawyer about what kind of business structure is right for your new business idea.

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