Top Benefits Of Forming A Limited Liability Company [LLC]
When it comes to starting a business, you have a few options. For instance, you can choose to form an LLC – Limited Liability Company. An LLC is a business model that offers limited liability protection as well as some taxation benefits. As with any other corporations, the LLC typically exists as a separate entity from its owners. This means that owners can’t be held personally responsible for the business liabilities and debts.
If you are planning to start an LLC, here are some of the benefits you will enjoy.
- Limited personal liability
One of the top benefits of LLCs is that they shield its owners from personal liabilities for acts of the LLC and its other members. LLC are solely responsible for their own debts and obligations unlike sole proprietorship or partnership where all your business debts are also your personal debts.
With proprietorship and partnership, if your partner or employee is accused of negligence, you risk losing your personal assets. With an LLC, even if you lose money you have invested in the company, your personal assets such as bank account and home will be safe. Your personal assets are also protected in case a partner, staff, or the business is sued for negligence.
- Flexible membership
When it comes to LLCs, there is no limit on the number of members. Members can be individuals, trusts, partnerships, or corporations. S corporations are much more restricted in who can be a shareholder, and there is a maximum limit on the number [they cannot have more than 100 stakeholders, and each stakeholder must be a resident or citizen of the United States.
- Tax flexibility
LLCs usually get the best when it comes to taxation. These businesses do not have their own federal taxation. However, they can adopt the tax status of partnerships, proprietorships, C corporations, or S corporations. Since the Internal Revenue Service automatically categorizes LLCs as either sole proprietorships or partnerships, depending on the number of members, it means that they can benefit from “pass-through” taxation. So they don’t pay corporate taxes or LLC taxes.
- Less paperwork
Establishing and running an LLC generally requires less paperwork compared to other corporate entities. Corporations typically must hold annual shareholder meetings, come up with annual reports, and many other things. In addition to that, they tend to have considerable recordkeeping needs. On the other hand, limited liability companies usually don’t hold annual meetings and aren’t required to keep extensive records. There are also states that do not need to file annual reports.
- Management flexibility
When it comes to limited liability companies, members can manage the company or elect a management group to do so. On the other hand, corporations are managed by a board of directors and not shareholders. Generally, LLCs have plenty of choices when it comes to the way to run the business.