Why Set Up an LLC?

By Anna Assad

A limited liability company offers many benefits, but whether or not the business type is right for you depends on your trade, personal needs and requirements. An LLC is a business organization structure with the legal faucets of both a partnership and a corporation. The owners of an LLC are referred to as members. The internal affairs of an LLC are generally governed by the operating agreement, a document drafted by members containing the rules, guidelines and restrictions for business operations.

Protects Your Assets

Your private assets, like your car and home, cannot be taken by creditors to satisfy the business debts of the LLC. Organizing your business as a corporation provides you with the same protection from creditors, but the formation procedures for a corporation are both more expensive and complex than the procedures for an LLC. A partnership formation is also less complicated than that of a corporation, but one member of the partnership may be held personally liable for company debts under state laws.

Gives You Tax Options

The IRS does not have a filing designation for LLCs. An LLC with one owner files income taxes as a sole proprietorship, but an LLC with two or more members can file as a partnership or corporation. A corporation is taxed as a business, and each shareholder is subject to taxes on distributions. You are not taxed twice, like a corporation is, if your company files as a sole proprietorship or partnership. Each member of the LLC is taxed on his interest alone, and the company itself is not subject to an entity tax.

Ready to start your LLC? Start an LLC Online Now

Less Restrictions on Your Business

Some corporation types are subject to restrictions on shareholders and stock availability; the corporation may only be allowed to have one class of stock outstanding. A stock class is a category the shares fall into, with each category having individual rights and limitations. LLC members can be individuals, other business entities, pension plans or other organizations. An LLC is not subject to stock class restrictions, allowing the company to provide for varying member rights, priorities and classes.

Gives You Management Control

The members of your LLC decide how the company is managed. You may manage by members -- where all of the owners have management rights -- or hire an outside person to manage the company for you. Corporations are typically managed by a board of directors chosen by the person forming the business, but the shareholders may vote to remove or add persons to the board.

Ready to start your LLC? Start an LLC Online Now
Corporation vs. Officer vs. Owner


Related articles

How to File an S Corporation in California

To form a corporation in California, you must register with the California Secretary of State. However, California does not register corporations as "S corporations" -- S corporation status is a taxation category established under the federal Internal Revenue Code. Once California has established your corporation, you may apply for S corporation status with the IRS. S corporation status offers income tax advantages to small businesses. However, not all companies qualify for S corporation status.

Advantages & Disadvantages of LLC Vs. LLP

A limited liability company is owned by members and is a mix of the features of a corporation and partnership; the structure provides personal asset protection for members. A limited liability partnership is owned by partners and provides some of the same protection from creditors as an LLC. Both business types carry benefits and drawbacks, but you may be required to use a particular type in your area. Some states only allow a professional service business, like an accounting firm, to form an LLP.

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. The advantages can range from liability protection to tax benefits, while drawbacks may include lack of uniformity and consistency among the state statutes governing LLCs. A savvy business owner should consider all these advantages and disadvantages before deciding whether a limited liability company is the preferred structure for her enterprise.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

Can I Have Many Businesses Under My Corporation?

A corporation is an independent legal entity that is formed under state law. It has an existence that is separate from ...

Can an S Corporation Be a Member of an LLC?

LLCs and S corps are two different types of designations under two different legal frameworks. LLCs are entities of ...

Can a Corporation Be a Partner in a Partnership?

Corporations share many abilities possessed by individuals, including the ability to enter into a partnership. ...

LLC Vs. S Corporation in Kentucky

One of the most important decisions to make when you start a business is what business structure to use, and there are ...

Browse by category
Ready to Begin? GET STARTED