Why Your Small Business Should Consider LLC Formation
A limited liability company, or LLC, is easiest described as being a composition of a partnership and a corporation. Simply explained, an LLC offers the good parts of a corporate structure without all of the corporate formalities.
The multiple owners, called members, of an LLC are treated like a partnership for tax purposes. It is a pass-thru tax structure, so income taxes are paid by its owners, so, unlike a corporation, the LLC itself never pays taxes.
An LLC never worries about the double-taxation issue that a corporate structure does. To simplify this, because the tax liability is put on only the owners, any income is only taxed once. However, a limited liability company must still pay state (if applicable) and federal payroll taxes.
At the time of forming an LLC, a decision is made about how you choose the tax treatment desired. You can be taxed like a sole proprietor, a C corporation, or an S corporation. The great thing about a limited liability company is that you get to decide how to handle paying taxes.
Assuming that the LLC is properly set up, and personal and business activities are kept completely separate, the members can look forward to certain personal liability protection. This is one of the biggest reasons to form an LLC instead of running a business as a sole proprietor. You should also consider that a business generally earns more respect when it has a formal structure, such as a limited liability company.
LLC formation is done by someone who does not necessarily have to be an owner. You can actually use an online company to form your LLC for a very reasonable cost, which means you are assured that everything is set up correctly.
A member’s monetary liability is limited to the financial contribution made by that member. When you are operating as an LLC, you can bring in multiple partners, who can be active in the company, or just contribute money.
A limited liability company is a business organization, or business structure, that is very similar to a corporation, but offers its owners more flexibility. Creating an LLC works best a smaller business in which there doesn’t have to be too many owners.
The LLC is a fairly new form of business entity, at least in the US. As a matter of fact, as early as 1986, LLCs were only permitted in two states. Today, every state recognizes this business structure.
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