Forming an LLC May Be a Wise Choice For Your Small Business
A limited liability company, or LLC, can be best considered to be a mixture of a partnership and a corporation. Simply explained, an LLC gives you many of the benefits of a corporate structure but not all of the corporate protocols.
The multiple owners, called members, of an LLC are looked upon as a partnership for tax purposes. It is a pass-thru tax structure, so income taxes are paid by its member, so, unlike a corporation, the LLC itself never pays income tax.
Because of this, an LLC never worries about the double-taxation problem that a corporation faces. To simplify this, due to the fact that the tax obligation is put on only the owners, any income is only taxed once. However, a limited liability company must still pay state (assuming there is any) and federal payroll taxes.
At the time of forming an LLC, a decision is made about how you choose the tax treatment desired. You have the choice to be taxed like a sole proprietor, a C corporation, or an S corporation. The great thing about an LLC is that you get to decide how to handle paying taxes.
If the LLC is properly set up, and you completely separate business and personal happenings, the members can look forward to certain personal liability protection. This potential protection is one of the biggest reasons to form an LLC instead of operating as a sole proprietor. Also, a business generally earns more respect when it has a formal business structure, such as a limited liability company.
Form a LLC is done by a person who does not necessarily have to be an owner. You can actually use an online company to form your LLC for a very nominal cost, saving you from having to ensure everything is set up correctly.
A member’s financial liability is limited to the amount of money contributed by that member. When you are operating as an LLC, you can bring in more than one partners, who can either be actively involved in the company, or serve as silent investors.
An LLC is a business structure that is very very much like a corporation, but offers more flexibility to its owners. Starting an LLC with an LLC online company is most suitable for smaller companies 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, limited liability companies were only allowed in two states. Today, the LLC is recognized in every state.
