An LLC or Limited Liabilities Company is a form of private company that’s not as complex as it sounds. When you set up business, you will need to determine in what form it should take, and an LLC provides the most benefits compared to general partnerships and C-corporations.
One thing’s for sure, an LLC is preferable for startups that want to secure their investments and tap into possibilities for greater growth. And like a sole proprietorship, an LLC enjoys a pass-through treatment for any and all income it derives from its operations.
Let’s look at five other advantages that make LLCs an attractive choice for your business.
- Easy to set up
Unlike other legal structures, LLCs are fairly simple to build, considering the limited paperwork your enterprise handles. All you have to do is to choose a business name and prepare your Articles of Organization. You will also need an operating agreement and issue a public notice of your intent to create an LLC.
Relative to other forms of organization, LLCs don’t require too much time to set up. However, small businesses that want to apply for LLCs may easily get lost in the application process. To prevent this, it’s always important to get the right amount of legal help from a business law firm. Stark and Stark, for instance, is very much capable of helping you gather all the documentation you need to establish your business as an LLC.
- Protection of personal assets from debt obligations
As the name implies, owners have limited liabilities to shoulder. In other words, if the business incurs any debts, owners won’t have to handle liabilities since these will be charged against the assets of the business. Banks and lenders are not compelled to go after the owners if they need to settle any debts.
For example, if you have invested a certain amount in the business and it comes to the point that the business is unable to pay rent or settle its monthly obligations, the other party won’t be in the position to claim your personal assets such as your house, car, or bank accounts to settle these obligations.
- Less taxes
LLCs are typically in the same classification as partnerships in that they use a pass-through system. This means that a business is never obligated to pay corporate and federal taxes. The income deductions are instead derived from the owner’s tax returns.
Owners may need to pay certain taxes, especially if they classify themselves as self-employed under the LLCs, as the IRS requires them to make quarterly payments. Certain states also require LLCs to pay annual taxes on the income they generate. Still, compared to C-corporations, the taxes and registration fees are not as large in the case of LLCs.
- Flexibility in equity distribution
People who have a stake in an LLC may invest a certain amount and claim a corresponding share of the equity as a result. At most times, owners may agree to a share relative to the amount of money they invested in the LLC. It’s this reason that businesses under this classification are more flexible compared to C-corporations.