What are the benefits of forming an LLC?All Rights Reserved. Copyright 2010
First of all, what is an LLC? LLC stands for Limited Liability Company. A Limited Liability Company is a legal business structure that handles daily business activities like a sole proprietorship for single member LLCs or a partnership for multi-member LLCs. Forming an LLC provides personal limited liability protection for the owner(s) much like a corporation. However, since it is not a partnership or a corporation, owners are not called partners or share holders, they are known as members.
LLCs can offer many benefits if you own a small business. They're easy to form and for the most part there is not much paperwork involved in the initial filing. LLCs also help to protect the personal assets of the member(s). In most states you can maintain the company's good standing by filing an annual report and paying the state's annual fee. Further, as long as you operate and maintain the LLC properly and follow your states compliance statutes your personal assets should be protected in the event that the LLC is ever sued!
A additional benefit of the LLC is that it actually combines the aspects of partnerships and corporations. In doing this, an LLC is less formal, and more flexible than a typical corporate setup but it also offers protection and even certain advantages that are the same as those of a corporation. For example, members of a properly operated and maintained LLC should not be held personally liable for company debts. Their assets are also separated from those of the LLC, so personal assets are afforded protection as well.
Another advantage of an LLC is that while they are traditionally taxed as a sole proprietorship or partnership, they can also elect to be taxed as a sub chapter s corporation. LLCs have what is known as pass-through taxation which differs from the double taxation associated with c corps. Members of an LLC will only be required to pay taxes on their earnings instead of paying both corporate and individual taxes on the same earnings
Unlike a sub chapter s corporation, which limits the number of share holders, there is no limit on the number of members an LLC can have. Also LLCs are not required to have bylaws, hold meetings or record minutes. However, it is a good practice for the members of an LLC to develop an operating agreement which outlines how the affairs of the business will be conducted.
Another great benefit to you that LLCs can offer is the transferability of ownership interest. The business can continue on as changes are made to the membership of the LLC.
As an LLC, you also have more options available to raise capital. You can admit new members by selling membership interests. You can even create new classes of membership interests with different voting or profit sharing characteristics.
LLCs offer many advantages and benefits for small business owners. They are fairly easy to set up and offer personal liability protection for their members. The flexible business structures and tax elections offered by LLCs make it well worth consideration when deciding what direction your business should take.
Michael Jagoda has been an online business owner since 1996 and currently owns and operates Start Biz Here an online business incorporation and llc formation service. Content article shown above may be linked and circulated freely on web sites, as long as ALL article content, links, author and copyright information remain UNCHANGED in any way whatsoever.