Benefits of Operating as an LLC
If you are in the process of creating a new business, there are many different business entity options from which to choose. Among small businesses, a limited liability company (“LLC”) is a very popular choice because of its many advantages. Below we have detailed some of the common benefits to operating an LLC:
1) Limited personal liability. Perhaps the greatest and most obvious benefit to operating as an LLC is that you as an individual have limited liability if something goes wrong. An LLC is legally separate from its members. This means that your personal assets, such as your home, personal savings, and collections, are protected from being used to collect the debts of the business. The only amount that you can “lose” is what the business actually owns. Other types of business entity, like corporations, also have limited liability for owners, but the LLC has additional advantages.
2) Fewer formalities. LLCs do not need to follow the same administrative requirements as corporations. Corporations must follow rules regarding meetings, shareholders, and record-keeping. LLCs, on the other hand, are not held to the same extensive requirements.
3) Tax benefits. A huge advantage to the operation of LLCs includes the tax benefits. An LLC can adopt the tax status of a partnership, taking advantage of a partnership’s “pass-through taxation.” Pass-through taxation means members of an LLC pay income taxes on their own tax returns, while the LLC does not pay taxes. This is alternative to a certain type of corporation where income is taxed both for the corporation and the shareholders, known as “double taxation.”
4) Management flexibility. LLCs do not require a formal structure for operation: they are flexible in how they conduct business. An LLC is not required to elect a board of governors. The offered flexibility ranges from all members actively managing day-to-day affairs, to some members not participating in management, or even to a structure similar to a corporation’s board of directors.
5) Flexibility in profits. In accordance with IRS rules and other laws, members in an LLC can set up profit distributions however they see fit. The profits do not need to be distributed equally among owners. For example, if one member works fewer hours, that member may receive a smaller share of the profits.
Overall, the entity you choose for your company forms the foundation of your business. An LLC may be a good choice for you. It is important that you discuss your options with an attorney and select the entity best suited for your business goals. If you have any questions, please do not hesitate to contact one of our experienced attorneys practicing in the area of business law: