Why Open an LLC?

By John Barron

An LLC, or limited liability company, offers distinct advantages over other more traditional forms of doing business. For business owners, an LLC offers the advantages of limited liability in conjunction with the ability to elect how the entity will be taxed. Additionally, owners, known as members, of an LLC are not obligated to adhere to rigorous corporate formalities in the conduct of their business.

Limited Liability Protection

As a creature of state statute, an LLC is recognized as a separate legal entity distinct from that of its individual members. The principal benefit of conducting business as a LLC is that it insulates the members of the enterprise from liability for the debts of the business. Such protection is not available to a sole proprietor, nor is it available to a business operating as partnership, in which each individual partner is liable for the debts of the partnership. Since all states allow the formation of single-member LLC’s, by converting to an LLC, a sole proprietor can avail himself of the limited liability protections afforded shareholders in a corporation.

Pass-Through Taxation Of Earnings

One of the distinct disadvantages of conducting business as a traditional corporation is that the earnings distributed to shareholders are taxed at the corporate as well as at the individual level. Since in most cases, an LLC is treated as a partnership for federal income tax purposes, profits of the business are taxed only once. The LLC itself is not taxed, but rather profits and losses of the business are passed through directly to its individual members. Although an S corporation provides similar tax benefits, many businesses may not meet the strict qualifications for S corporation status.

Ready to start your LLC? Start an LLC Online Now

Tax Flexibility

Unlike a partnership or a traditional corporation, an LLC offers its members a choice as to how the entity will be taxed for federal income tax purposes. An LLC can elect to be taxed either as a partnership, as a sole proprietorship, or as a C or S corporation.

Lack Of Corporate Formalities

Pursuant to statute in some states, in order to preserve the limited liability protection afforded shareholders, a corporation must adhere to and observe certain formalities. These may include the requirement to hold annual board of directors and shareholder meetings. An additional burden may be the requirement to document any business conducted at meetings by maintaining minutes. However, in most jurisdictions, an LLC is not required to hold annual meetings, maintain minutes of member meetings nor keep records of company resolutions.

Ready to start your LLC? Start an LLC Online Now
What Is the Structure of an LLC?


Related articles

Can a Chapter C Corporation Carry Over to a Personal Tax Return?

Once you file the appropriate documentation to create a legal corporation in your jurisdiction, state and federal law will recognize the corporation as an independent entity. For federal tax purposes, the entity is subject to income tax under Subchapter C of the Internal Revenue Code and is referred to as a “C corporation.” Since Subchapter C treats corporations as distinct taxpayers, the net income or loss doesn’t carry over to the personal tax returns of shareholders.

What Tax Forms Are Needed for an LLC?

Federal tax law does not provide specific rules that govern every limited liability company. Instead, the Internal Revenue Service allows members of a LLC to choose between corporate, partnership and individual taxation. The type of tax return in which you report the LLC’s income and expenses depends on the tax structure you choose to apply.

Difference Between LLC & Inc

A limited liability company, or LLC , is a hybrid business entity that includes some features of corporations. For example, both corporations and LLCs provide their owners protection against the debts of the business. There are some crucial differences, however, that should be considered when choosing the best form for your business.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Advantages & Disadvantages of a Limited Liability Company

A limited liability company, or LLC, is an entity that offers both advantages and disadvantages to a business owner. ...

LLC Explained

A limited liability company (LLC) is a type of company that exhibits characteristics of both partnerships and ...

Difference Between an LLC & Incorporation

Both incorporations and LLCs are fictitious business entities created under state laws. But the limited liability ...

LLC Vs. PC Solo Practice

Limited liability companies and professional corporations are two forms of business structure available in most states ...

Browse by category
Ready to Begin? GET STARTED