Why form an LLC?
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by: Christine Johnson5
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The LLC formation is considered as a wise decision due to numerous advantages involved in it. Here is a small guide that will tell why forming a LLC business is beneficial. An LLC or Limited Liability Company is a business entity that holds a combination of characteristics of the both partnership and corporation. This business entity is flexible offering limited liabilities to the owners in respect of debts and company action. These kinds of companies are suitable for the single owner of a small company or when there is a small group of owners. LLC formation is also considered as a better alternative for mere partnerships and sole proprietorships.
Importance of a LLC business:
(a).An LLC is more flexible and easier to maintain than a standard corporation. There is no need to keep records of minutes of meetings or hold an annual meetings in case of a member managed LLC business. Thus the recordkeeping becomes simpler. However, it is recommended that every LLC have some paperwork. The LLC may keep a simple record of all meeting and other formalities, depending on the structure followed by their owners. It is completely owners' decision about how to best keep the records or whether not to have this process.
(b).As the name suggests LLC offers limited liabilities. The members of LLC business are treated as the separate owners of the LLC. Hence they do not have personal liability for business debts. A properly managed LLC business can protect the personal assets of each member from lawsuit and other legal action resulting from the business. As a result, every member’s loss is limited to the amount he or she invests in the company.
(c).An LLC is a separate business entity, which is neither treated as the corporation nor as a partnership. For tax purposes, if the LLC is owned by only one member, then the LLC is treated as sole proprietor business by the Internal Revenue Service. On the other hand, forming an LLC with numerous owners, the IRS treats it as a partnership for tax reasons. In either case, the owners can report their part in losses and profits of the LLC, which will be taxed individually. While these are the default tax structures, an LLC can also elect to be taxed as a corporation. The tax benefits have made the process of filing LLC formations very popular in the US.
(d).Unlike the "S Corporations", which requires the owners of the company to be the citizens of United States alone, LLC has no restrictions on the citizenship of its owners. Besides this, LLC business provides simple operational and flexible management options for a company. This means, LLC business can be managed by the members or a person hired specially for this purpose.
(e).LLC businesses are recognized in every state in the US. Hence, there is no harm or risk in your LLC formation not being recognized by varying legal bodies.
(f).The Limited Liability Company offers flexible allocations of profit and loss. While the default is to allocate tax items based on membership interests, there is no absolute requirement to do so.. Subject to some IRS restrictions, the members of the LLC can agree amongst themselves to allocate LLC's losses and profits in a different method, irrespective of the ownership each member holds in the company. Check with your accountant as this can get complicated.
(h).Standard business operational expenses like the employee salaries, marketing, and overhead are paid through the profits of the company, like any other business entity.
Sometimes a Limited Liability Company is mistakenly called a Limited Liability Corporation. This is because it offers an improved version of the corporation designed for the small business. Today more and more businesses are choosing the LLC.
About the Author
Christine Johnson is author of article written on limited liability company & llc formation. For more information, please visit :www.thellcexpert.com
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