Why Start an LLC?

By Lisa Magloff

There are several different ways to structure a company: for example, you can set up an S-type or C-type corporation, a general partnership or a sole proprietorship. However, there are several advantages to organizing your business as a Limited Liability Company (LLC). These include tax advantages, limited personal liability and administrative advantages.

Liability Protection

An LLC is a legal entity distinct from its owners. In an LLC, the owners of the business (which in an LLC are called members) have only a limited responsibility for the debts and other liabilities of the company. Members are not held personally liable for any debts or court judgments against the business. This means that your personal assets are protected. In many cases, owners are also shielded from being sued personally for any wrongs committed by the business. For example, if the LLC owns real estate and a tenant trips and injures themselves, that tenant can sue the LLC but usually not the owners personally. In addition, if the business fails, the debts do not have to be carried over into your next business venture.

Member Flexibility

An LLC may have any number of members – starting with just one. In some states the LLC owner may also be another LLC. In contrast, S-corporations are limited to 100 stockholders, each of whom must be a U.S. citizen or resident. Most states do not require LLCs to hold annual general members meetings, and most states also require less paperwork and record-keeping of LLCs than of corporations. Members themselves can decide the ownership structure, voting rights and other aspects of their business relationship.

Ready to start your LLC? Start an LLC Online Now

Tax Savings

According to the Internal Revenue Service, LLCs may be taxed as a “pass-through” entity. A pass-through entity is one in which any profits, losses, deductions and tax credits can be reported on members' personal tax returns rather than on a corporate tax return. This allows members to pay taxes at their individual tax rate, which is often lower than the business tax rate. It also avoids double taxation, which imposes both a business tax on company profits and personal income taxes on owners or shareholders. If you are actively participating in running the LLC, you may also deduct operating losses against your income, saving you more money.

Ease of Transfer

In an LLC structure, owners can usually sell or transfer ownership interests to a third party with a minimal amount of administration and paperwork. According to investment experts NuWire Investor, this makes it easier to leave your business to your beneficiaries, or to sell your share in a business. NuWire points out that some families hold their assets, such as real estate, as an LLC. When one family member dies, the assets can then pass directly to the remaining family members, who are also members of the LLC, without the need to pay inheritance taxes. Membership interests can also be placed in a living trust for your heirs, so that they pass directly.

Ready to start your LLC? Start an LLC Online Now
Pros & Cons of an LLC


Related articles

Sole Proprietorship & Investment Accounts

The sole proprietorship is a very common form of small business, and beyond running their underlying business, sole proprietors are free to make investments and hold assets in investment accounts. These accounts can be used to augment savings for the business, to speculate on specific investment opportunities or to offset financial risks encountered in the sole proprietorship's business operations.

How to Understand an LLC

Limited liability companies combine the advantages and disadvantages of corporations and private partnerships. Understanding an LLC involves discovering which aspects of this unique form of business organization resemble traditional models. LLCs can be an ideal business form for particular companies and industries, but their limitations make them a model that is not suited to every situation.

S Corp Vs. Corp

Incorporating a business creates a separate legal entity and protects shareholders with limited liability. However, a corporation can be either a C corporation or an S corporation. An S-corp is a C-corp that has made a special election. The differences relate to who can be a shareholder and how the company and shareholders pay taxes on the business's profits and losses.

LLCs, Corporations, Patents, Attorney Help LLCs

Related articles

LLC Vs. PC Solo Practice

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

What's an LLC?

An LLC, or limited liability company, is a flexible form of business entity that provides its owners with the safeguard ...

What Does LLC Mean in a Business?

A limited liability company, or LLC, is a type of business structure where the owners or partners -- called members -- ...

What Are Two Main Advantages That a Corporation Has Over a Proprietorship and a Partnership?

C corporations -- corporations that have not elected to be taxed under Subchapter S of the Internal Revenue Code -- ...

Browse by category
Ready to Begin? GET STARTED