Why Your Small Business Should Consider LLC Formation
The business structure know as an LLC can be best described as being a hybrid between a corporation and a partnership. To put it simply, an LLC give a business many of the benefits of a corporation but not all of the corporate formalities.
The owners of an LLC, who are called member, are treated like a partnership when it comes to taxes. The LLC is a pass-thru tax structure, so income taxes are paid by its owners, so the LLC never pays income taxes itself, unlike a corporation.
Because of this, an LLC does not suffer from the double-taxation issue that a corporate structure does. To simplify this, because the tax liability is put on only the owners, any income is only taxed once. Though, a limited liability company must still pay state (if applicable) and federal payroll taxes.
At the time of LLC form, you choose how you choose the tax treatment desired. You have the choice to be taxed like a sole proprietor, a C corporation, or an S corporation. The great thing about a limited liability company is that you get to decide how to handle paying taxes.
If the LLC is set up correctly, and personal and business activities are completely separated, the members can look forward to certain personal liability protection. This is a big reason why people choose to form an LLC versus operating as a sole proprietor. Also, a business earns more admiration when it has a formal structure, such as an LLC.
Form an LLC is done by someone who does not necessarily have to be a member. You can actually use an online company to form your LLC for a very reasonable charge, which means you are assured that the structure is set up correctly.
A member’s financial liability is limited to the financial contribution made by that member. When you are operating as an LLC, you can bring in more than one partners, who can either be actively involved in the company, or serve as silent investors.
While an LLC is similar in structure to a corporation, it offers member more flexibility. Forming an LLC with an online incorporation services company is most suitable for a smaller business in which the number of owners is limited.
In the United States, the limited liability company is a relatively new business structure. As a matter of fact, as early as 1986, you could form an LLC in only two states. Now, the limited liability company is recognized in every state.
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