If you run a small business, you've probably heard the following three letters being bandied about at every Chamber of Commerce event and family gathering: LLC. Perhaps your cousin set one up for his landscaping company. Perhaps your accountant has advised you to do the same. But what does an LLC really mean for your small business, and is it worth the paperwork? These are good questions, and many hardworking business owners never receive clear answers.
The Latino community has a real stake in getting this right. In reference year 2023, roughly 5.3 million Hispanic-owned nonemployer firms made up 17.5% of all nonemployer firms in the country, bringing in $244.2 billion in receipts, according to the U.S. Census Bureau. Add in about 496,000 Hispanic-owned employer firms, and you're looking at one of the fastest-growing engines in the American economy. With a U.S. Hispanic population of over 68 million as of July 1, 2024 — about 20% of the country — that growth isn't slowing down.
And yet many of these businesses operate with no legal protection whatsoever. This means that a single lawsuit or unpaid debt can reach straight into a family's savings, as the owner and the business are one and the same. One of the most common tools for creating a separation between the two is an LLC. Let's take a look at what it actually does.
Key takeaways
- If you run it properly, an LLC (limited liability company) is designed to protect your personal assets from your business debts.
- In 2023, limited liability companies (LLCs) accounted for 72.7% of the over 4.5 million partnership tax returns filed with the Internal Revenue Service (IRS).
- Courts can 'pierce the corporate veil'. In the 2025 case of Rich v. J.A. Madison, LLC, one LLC was held liable for $179,660 of another's contractual debt.
- Annual costs can vary significantly: For example, California charges an LLC tax of $800, while Delaware charges $300, according to state figures.
- The federal beneficial-ownership reporting system has been subject to change; FinCEN's March 2025 rule now exempts most entities formed in the US.
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What an LLC actually does for you
LLC stands for 'limited liability company'. The key phrase is 'limited liability'. This means that if your business owes money or is sued, people generally can only claim what the business owns — not your house, personal bank account or car.
Imagine you run a small catering business as a sole trader, with no legal entity. What would happen if a client slipped at one of your events and sued you? Without an LLC, your personal savings could be at risk. However, with a properly run LLC, the lawsuit would generally stop at the business, unless the claim is about something you did personally. That wall is the whole point.
The LLC is a popular choice because it is flexible. You can set one up with one owner or several. Unlike a corporation, you don't need a board of directors or shareholder meetings. The tax treatment is also usually straightforward, which is important when you're already working twelve-hour days.
However, here's the thing. That wall only protects you if you treat the business as a distinct entity. If you mix your personal money with the company's money and skip the paperwork, the protection starts to crumble. We'll come back to that.
How to actually form an LLC
Forming an LLC is done at state level, not federal level. While the steps are similar across most states, the names and fees do change.
- File your Articles of Organisation. This is the founding document that you submit to your state. It contains basic information such as the company name and address and who is running it. In Texas, this document is called a 'Certificate of Formation' (Form 205), and it carries a filing fee of $300, according to the Texas Secretary of State.
- Appoint a registered agent. This is the person or company that will receive legal documents on behalf of your business. You can be the registered agent, but you must be reliably available at a physical address during business hours.
- Write an operating agreement. This is the internal rulebook, setting out who owns what percentage, how decisions are made and what happens if an owner leaves. Although many states don't require it, skipping this step is a mistake, especially when you have partners.
- Handle state-specific extras. For example, New York requires new LLCs to publish a notice in two newspapers for six consecutive weeks and to file a Certificate of Publication within 120 days, in accordance with New York LLC Law § 206, as stated by the New York Department of State. Filing the articles costs $200; the publication certificate adds $50.
These rules vary depending on where you live, so make sure you know your state's exact requirements before filing.
Do you need a Latino lawyer who speaks Spanish? Heritage Web can put you in touch.
The tax question everyone asks
One reason the LLC is so common is its pass-through taxation system. Rather than the business paying income tax and the owners paying tax again on their earnings, the profits 'pass through' to the owners, who declare them on their personal tax returns. Income is taxed only once.
By default, the IRS automatically sorts LLCs. According to the Electronic Code of Federal Regulations, under 26 CFR § 301.7701-3, an LLC with two or more members is treated as a partnership, while a single-owner LLC is treated as a 'disregarded entity' — meaning the IRS essentially disregards it and taxes the owner directly. You can change this by filing Form 8832, but once you have done so, you generally cannot change it again for 60 months, so it is not a decision to be taken lightly.
These structures are everywhere. According to the Internal Revenue Service, for the 2023 tax year, LLCs accounted for 72.7% of all partnership returns filed with the IRS, out of more than 4.5 million Form 1065 returns. That's millions of small businesses choosing this exact setup.
Taxes can become complicated quickly, so the best option for you depends on your income and goals. It is advisable to consult a tax professional or a business formation attorney before making any decisions.
The cost of running an LLC
Forming the LLC incurs a one-time cost. However, keeping it active involves ongoing costs, which often surprises people. Each state charges annual or recurring fees, which range from modest to steep.
California is at the expensive end of the scale. From 2025 onwards, every LLC will owe an annual tax of $800, and those with at least $250,000 of income in California will face an additional tiered fee based on income, which can climb to $900, $2,500, $6,000 or even $11,790, according to the California Franchise Tax Board. This is significant for the approximately 5.77 million Hispanic residents of the Los Angeles–Long Beach–Anaheim metropolitan area, which has the largest Hispanic population of any U.S. metropolitan area according to the Census Bureau — many of whom own businesses there.
Compare that to Delaware, where both domestic and foreign LLCs pay a fixed annual tax of $300 and are not required to file an annual report, according to the Delaware Division of Corporations. Pennsylvania recently shifted to annual reporting under Act 122 of 2022. As of 2025, the annual report fee for LLCs will be just $7 and it will be due by 30 September, according to the Pennsylvania Department of State.
Deadlines carry real weight. In Florida, entities formed before 2025 had to file their annual report for 2025 by 1 May. According to the Florida Department of State, a late filing triggered a $400 late fee. Miss the deadline, and the cost of maintenance suddenly becomes much higher. Fees and deadlines often change, so check your state's current schedule every year.
How owners lose the protection they paid for
Do you remember the wall between you and the business? Courts can tear it down. This process is known as 'piercing the corporate veil', and occurs when a judge rules that the LLC was never truly separate from its owner — essentially, the owner was just wearing a costume.
The good news is that courts don't take this action lightly. In Love's Oven, LLC v. Walters (Colo. Ct. App. 2025), for example, the court applied the alter-ego factors to a single-member LLC. However, the court found that the evidence did not prove that the LLC was a sham. Therefore, the owner was not held personally liable, according to the Colorado Court of Appeals. That was the outcome even though the underlying judgment against the LLC was $500,000.
But it does happen. In the case of Rich v. J.A. Madison, LLC (N.Y. App. Div. 1st Dep't, 2025), the New York Supreme Court, Appellate Division, upheld an alter-ego judgment, making the related company Jonathan Adler Enterprises, LLC, liable for $179,660 plus interest on another LLC's contract debt. The lesson is that the shield is far more likely to hold when you respect the separation, and far more likely to fail when you don't.
Keep business and personal money in separate accounts. Sign contracts in the company's name, not yours. Keep records. These habits give your LLC's protection its best chance of holding up in court, and a business lawyer in your state can tell you what else it expects.
The federal reporting rule you keep hearing about
You may have heard about the Corporate Transparency Act, which requires businesses to report their beneficial ownership information. The rule has undergone many legal changes, so the confusion surrounding it is understandable.
The courts were divided. In National Small Business United v. Yellen (N.D. Ala., 2024), a federal court ruled that the Corporate Transparency Act exceeded the powers of Congress and blocked its enforcement against the plaintiffs, according to the U.S. District Court for the Northern District of Alabama. Then, in Texas Top Cop Shop, Inc. v. Garland (E.D. Tex., December 2024), a Texas court issued a nationwide injunction which was considered by the Fifth Circuit before being stayed by the U.S. Supreme Court in McHenry v. Texas Top Cop Shop (January 2025), without the Court deciding whether the law is constitutional.
Where does that leave you? FinCEN issued a revised rule effective March 26, 2025 (90 Fed. Reg. 13,688) that exempts entities created under U.S. law and limits reporting to qualifying foreign-formed companies registered in the United States, according to the Financial Crimes Enforcement Network. The penalties were never trivial — the willful-violation civil penalty rose to $606 per day effective January 17, 2025, per FinCEN. Because this area keeps shifting, confirm the current requirements with an attorney before assuming you're off the hook.
Getting help that you can actually understand.
Legal paperwork is challenging enough in your native language. According to the Census Bureau, among U.S. residents who speak Spanish at home, around 39% did not report speaking English 'very well' between 2018 and 2022. This is not a small group, and submitting the incorrect form or missing a deadline can result in financial loss.
You don't have to figure this out alone. According to the Minority Business Development Agency, resources such as the El Paso MBDA Business Centre, which is run by the El Paso Hispanic Chamber of Commerce, offer technical assistance, help with accessing capital and strategic planning for minority-owned businesses. A good attorney who speaks your language can also explain your operating agreement clause by clause, ensuring you fully understand what you are signing.
It is almost always cheaper to work with the right business formation attorney early on than it is to fix a mess later, especially if they understand both the law and your situation.
Your next step
An LLC can safeguard your family's future, but only if it is set up and maintained correctly. There are many forms to complete, fees to pay, tax elections to make and state deadlines to meet, and getting one piece wrong can undo the whole thing. The good news is that these are solvable problems with the right guidance.
Get in touch with a Latino lawyer who speaks Spanish and understands your culture. Submit your case details via Heritage Web's secure referral form and take the first step toward safeguarding your hard work.
This article provides general information and does not constitute legal advice. If you require guidance on a specific situation, please consult a qualified attorney.
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Sources
- National Small Business United v. Yellen
- Census Bureau
- Texas Top Cop Shop, Inc. v. Garland
- Fifth Circuit
- McHenry v. Texas Top Cop Shop
- Love's Oven, LLC v. Walters
- Rich v. J.A. Madison, LLC
- 26 CFR § 301.7701-3
- Financial Crimes Enforcement Network
- 90 Fed. Reg. 13,688
- Minority Business Development Agency — Minority Business Development Agency, 2025
- FinCEN
- Internal Revenue Service
- California Franchise Tax Board
- Delaware Division of Corporations
- Texas Secretary of State
- New York Department of State
- Pennsylvania Department of State
- Florida Department of State
