Alabama LLC Advantages and Disadvantages

Alabama LLC Advantages and Disadvantanges - Alabama is one of the hottest places in the nation to start and grow a business, according to a new national report. Entrepreneur.com ranked Alabama number five overall on its state list in the 2005 Hot States for Entrepreneurs. The state was ranked as the second best place in the nation to launch a new business and 12th best for rapid growth of a young company. An Alabama LLC offers business entrepreneurs the form of corporate organization that provides perhaps the most flexibility to you. An LLC formation, like the alternative corporate forms of organization like a limited partnership or a Subchapter S Corporation, are generally prime candidates for a business juststarting. The state of Alabama gives public support to an LLC.

Should I form an LLC in Alabama?

An Alabama LLC satisfies a necessary condition of your business planning developement in that it meets the requirement that you establish a legal form of organization in order to gain the statutory benefits and protection available in Alabama to your LLC. Your Alabama LLC establishes a legal presence within the state, which you can use either as a platform for in-state operations or by registering your Alabama LLC via your agent's physical address in order to meet the purely statutory requirement for tax and filing purposes absent an in state operation.

A limited liability company (LLC):

The LLC is a relatively new type of hybrid business structure that is now permissible in most states. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Formation is more complex and formal than that of a general partnership.

The owners are members, and the duration of the LLC is usually determined when the organization papers are filed. The time limit can be continued if desired by a vote of the members at the time of expiration. LLC's must not have more than two of the four characteristics that define corporations: Limited liability to the extent of assets; continuity of life; centralization of management; and free transferability of ownership interests.

An LLC is a type of business ownership combining several features of corporation and partnership structures

An LLC is not a corporation or a partnership

An LLC may be called a limited liability corporation, the correct terminology is limited liability company

owners are called members not partners or shareholders

number of members are unlimited and may be individuals, corporations, or other LLC's

Advantages and Disadvantages of LLC

Advantages of Limited Liability Company

Limited Liability: Owners of a LLC have the limited liability protection of a corporation.

Flexible Profit Distribution: Limited liability companies can select varying forms of distribution of profits. Unlike a common partnership where the split is 50-50, LLC have much more flexibility.

No Minutes: Corporations are required to keep formal minutes, have meetings, and record resolutions. The LLC business structure requires no corporate minutes or resolutions and is easier to operate.

Flow Through Taxation: All your business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Usually, this will be a tax advantage, but circumstances can favor a corporate tax structure.

Disadvantages of LLC

Limited Life: Corporations can live forever, whereas a LLC is dissolved when a member dies or undergoes bankruptcy.

Going Public: Business owners with plans to take their company public, or issuing employee shares in the future, may be best served by choosing a corporate business structure.

Added Complexity: Running a sole-proprietorship or partnership will have less paperwork and complexity. A LLC may federally be classified as a sole-proprietorship, partnership, or corporation for tax purposes. Classification can be selected or a default may apply.

Alabama’s 2009 Business Tax Climate Ranks 21st

Alabama ranks 21st in the Nation's State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. The ranks of neighboring states were as follows: Tennessee (17th), Georgia (27th), Florida (5th) and Mississippi (19th). 50-State

Alabama’s Individual Income Tax System

Alabama's personal income tax system consists of three separate brackets with a top rate of 5% kicking in at an income level of $3,000. That top rate ranks 32nd highest among states levying an individual income tax. Alabama's 2006 individual income tax collections were $630 per person, which ranked 36th highest nationally.

Alabama’s Corporate Income Tax System

Alabama's corporate tax structure consists of a flat rate of 6.5% on all corporate income. Among states levying corporate income taxes, Alabama's rate ranks 30th highest nationally. In FY2007, state-level corporate tax collections (excluding local taxes) were $110 per capita, which ranked 38th highest among states that tax corporate income.

Federal Tax Burdens and Expenditures: Alabama is a Beneficiary State

Alabama taxpayers receive more federal funding per dollar of federal taxes paid compared to the average state. Per dollar of federal tax collected in 2005, Alabama citizens received approximately $1.66 in the way of federal spending. This ranks the state 7th highest nationally and represents a rise from 1995 when Alabama received $1.33 per dollar of taxes in federal spending (ranked 9th nationally). Neighboring states and the amount of federal spending they received per dollar of federal taxes paid were: Tennessee ($1.27), Georgia ($1.01), Florida ($.97) and Mississippi ($2.02).

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