Structuring your cannabusiness LLC

A limited liability company (LLC) is defined as a simple business structure. LLCs combine characteristics of a partnership, sole proprietorship and corporation but remains an unincorporated association.

There are a number of advantages to establishing your cannabusiness LLC, but four that especially stand out as it relates to the cannabis industry. 

Limited Liability 

As the name implies, the owners of an LLC have no personal liability for the LLC. The LLC is responsible for its debts, obligations and legal liabilities. The business owners may experience loss of their capital contribution, similar to shareholders. However, their personal assets are usually not at risk. 

Flow-Through Taxation 

An LLC is not considered separate from its owners for tax purposes; the IRS recognizes such businesses as pass-through entities. Income received by the business passes through to the LLC’s members. They report their share of profit or loss on their individual income tax returns. Additionally, LLCs may be eligible for additional tax benefits available as pass-through deductions. 

Simple to Establish

Creating and sustaining an LLC can be less complicated compared to other business entity structures. LLCs are not subject to the same required record-keeping, annual meetings and fees needed to maintain corporations.

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Establishing your LLC can be a simpler process. In most states to start your LLC, you must file the Articles of Organization with the Corporations division of your state government and make payment of your filing fee. 

Flexibility 

LLCs are known for being one of the most flexible business types. However, other business structures may be subject to restrictions on ownership or membership. For example, S-corporations may not have shareholders that are corporations. LLCs are not subject to the same restriction on the type or number of members they may have. 

LLCs are not obligated to operate with a fixed management structure. The business owners have the option to determine their own formal structure and make further determination about the day-to-day business operations. The way LLCs distribute profits to owners is not fixed, meaning distributions do not have to comply with ownership interests. Corporations must pay distributions based on the number and types of shares held. 

There are advantages and disadvantages to any business structure. The adaptable LLC format may be best suited for your cannabusiness. A thorough assessment of your business goals will help determine the best entity structure to fit your cannabusiness needs. 

Kali Rose (8 Posts)

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