Forming a limited liability company (LLC) can be a notable decision for some entrepreneurs. While there are disadvantages in terms of costs, the benefits can far outweigh the costs. For most small and medium-sized business owners, forming an LLC has numerous benefits. Registering and functioning as an LLC provides businesses with a lengthy list of benefits that are often only present in a few other corporate types. Keep reading as we show you the advantages of an LLC.
Guarding Personal Assets
The fundamental benefit of forming an LLC is the limited liability protection it offers. When a business owner operates through an LLC, they require asset protection from possible lawsuits and obligations should the business fail.
Rights to a Legal Name
The establishing of a new venture with the same name as an operating one is usually prohibited by state law. However, you obtain the exclusive privilege to use your name as a corporate entity name in your state when you form an LLC. At the same time, the LLC designation at the end of a trademark can also help a small firm gain legitimacy.
More Options to How to Deal with Taxation
LLCs have more freedom than other corporate structures. Depending on whether there are one or more owners, LLCs are typically taxed as a sole proprietorship, partnership or even a LLC. Generally an LLC will default to a partnership or sole proprietorship that will pass the income to the individual’s personal tax return. This can be useful in some cases but you might be missing out on some advantages of electing it to be taxed as a company.
If the LLC does not want to be treated as a sole proprietorship or partnership, it can choose to be taxed as a C-corp or S-corp. LLC owners can be paid as firm employees, engage in company employee benefits, and consequently even save money on taxes thanks to corporate taxation.
To give you some descriptions, a C-corp pays corporate tax, and its shareholders pay tax on distributions. On the other hand, an S-corp is a pass-through organization, meaning it does not pay corporate tax but instead pays personal income tax on each owner’s part of the profits.
Attractive Versatility and Profit-Sharing Flexibility
LLCs aren’t obliged to hold yearly shareholder meetings or have an executive board, and they aren’t subject to the same administrative regulations that companies are. Members of an LLC are free to structure themselves as they wish, and members or supervisors are allowed to run the firm as they deem proper.
The opportunity for individuals to specify how profits are shared is one huge perk of a multi-member LLC. Companies pay dividends on the stock based on the number of shares held, and partnerships usually split earnings among members, but an LLC can choose whether its profits are divided, not shared, or dispersed in any other way. Be aware, though, that IRS profit-sharing guidelines may require earnings to reflect ownership percentages in actual economic need or context.
