Choosing a business structure is a big decision; in fact, choosing the wrong entity designation can prevent your business from ever becoming profitable. The brief summaries on the IRS website only tell you the good side. Paying business taxes is a hassle no matter which business structure you choose, and the penalties for unpaid taxes can be very steep. One of the reasons that limited liability company (LLC) is such a popular choice of business structure for businesses of all shapes and sizes is that it offers the company’s owners protection from becoming personally liable for the repayment of debts incurred by the company and for court judgments against it. If you are trying to choose a business structure, or if you have already established an LLC and are now dealing with a heavy tax burden or with a legal dispute, contact a Birmingham, Alabama business litigation lawyer.
What Is So Great About the LLC Business Structure?
For many companies, an LLC is the preferred business structure. An LLC has pass-through taxation like a sole proprietorship, which means that it is tied to your personal taxes. Unlike other business structures tied to your personal taxes, though, an LLC has limited liability. This means that creditors cannot pursue you, as a member of the LLC, for the LLC’s debts. Therefore, it can be the best of both worlds.
A Dispute Between a City and the Owners of a Closed Restaurant Over Unpaid Taxes
Bonedaddy’s of Lee Branch, LLC operated two barbecue restaurants in the Birmingham area, namely Bonedaddy’s and Sweet Bones Alabama. The LLC had at least five members, including Jimmy Taylor, his father James Taylor, Sr., and John Cowan. Cowan worked as a manager of at least one of the restaurants until early 2011. After the cessation of his employment, he remained as a member of the LLC.
By the time Cowan quit working for Bonedaddy’s, the LLC owed $23,000 in past due business license taxes. The restaurants had closed permanently by 2014, by which time the LLC was involved in a dispute with the City of Birmingham. The city tried to collect the unpaid taxes from the company as well as from its former members. Jimmy Taylor had filed for bankruptcy in Oklahoma shortly after the restaurants closed, so the city could not collect the debts from him. The dispute went all the way to the Alabama Supreme Court, where Cowan argued that, as a member of an LLC, he could not be held personally liable for the financial obligations of the LLC. Therefore, the Supreme Court reversed the part of the lower court’s decision that had ordered Cowan to pay the unpaid taxes.
Let Us Help You Today
LLCs offer a lot less hassle and less expense than some other kinds of business structures, but this does not mean that LLCs are completely immune to business disputes. If you are involved in a dispute with the other members of your LLC, an Alabama business & corporate litigation lawyer can help you. Contact Cloud Willis & Ellis for help.