To begin with , what is an LLC? LLC stands for Limited Liability Company. A Limited Liability Company is a legal business entity 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) in the same way as a corporation. However, since it is not a partnership or a corporation, owners are not called partners or share holders, they are referred to as “members”.
Forming an llc can provide many benefits if you own a small business. They’re simple to form and for the most part there is relatively little 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 in the right way and follow your states compliance statutes your personal assets should not be at risk in the event that the LLC is ever the subject of a law suit!
Another benefit of starting an 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 structure but it also offers protection and even some advantages that are the same as those of a corporation. For example, members of a properly operated and maintained LLC may 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 forming 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 called 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 wages instead of paying both corporate and individual taxes on the same earnings .
Unlike a sub chapter s corporation, which has limits on the number of share holders, there is no limit on the number of members an LLC can have. Also LLCs are not required to develop bylaws, hold meetings or record minutes. However, it is a good idea for the owners of an LLC to develop an operating agreement which sets forth how the affairs of the business will be conducted.
Another great benefit to you if you form an llc is that LLC’s can offer is the transferability of membership interest. The business can survive even as changes are made to the ownership of the LLC.
By starting an LLC you will find it easier 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 .
Setting up an LLC may offer many advantages and benefits for a variety of business owners. They are fairly easy to form and offer personal liability protection for their owners. The flexible business structures and tax elections offered by LLCs make it well worth consideration when deciding what direction your business should take.
