What Are the Advantages of Forming an LLC?

Many wonder what the advantages of forming an LLC are.  There are numerous reasons that a Limited Liability Company is the right choice for millions of Americans each and every year.  The following are the main benefits of forming an LLC and why the option might be right for you.

Personal Asset Protection

There are exceptions to this, but provided there is no fraudulent or illegal activity in business deals, owners of an LLC are not personally liable for the finances of an LLC.  This means they are not responsible for the LLC’s debts or any legal suits that result in financial penalties.

Pass Through Taxation

LLC profits and losses go directly to its owners.  These owners and stakeholders report their share of the profits on their individual tax returns.  LLC profits are only taxed once and losses also result in tax write offs.  This process is known as pass-through taxation.  It’s one of the biggest benefits to forming an LLC.

C-Corps do not have this same benefit.  Profits are subject to double taxation which isn’t as desirable for business owners.  Profits are taxed before  being distributed to owners and taxed again when these owners report their earning on individual tax returns.  

LLC Simplicity

One of the biggest benefits of LLCs is simplicity.  Limited Liability Corporations are pretty easy to form and don’t require a tremendous amount of paperwork.  Conversely to C-Corporations and S-Corps, Limited Liability Corporations do not have to assign officer roles.  They do not have to hold annual meetings.  They do not have to record company minutes and resolutions.  You know many C-Corps.  Think of what you would be able to invest in with the stock market.  Nearly all of these are C-Corporations.

LLC Flexibility

There isn’t a lot of red tape when you think about starting an LLC.  You can structure the management and ownership of the company in any fashion you would like.

  1. LLC’s can be single-member or multi-member in nature.
  2. Multi-Member LLCs do not require a governing body.  They can be managed by members only.  This is know and termed as Member-managed.
  3. A Multi-Member LLC can also be managed by a lead manager that is appointed my its members.  This type of LLC is known to be manager-managed.

One of the biggest benefits to LLC Flexibility can be found in tax law.  LLC’s can elect to be taxed as a C-corporation or an S-Corporation.  Whatever benefits LLC managing members most is on the table.  This makes LLC formation and flexibility highly desirable for prospective business owners.

An LLC Increases Company Credibility

There’s nothing quite like seeing the letters LLC at the bottom of a web page or potential contract.  An LLC gives your business added credibility.  It may make it easier for you to close the deals you desire to.  A limited liability corporation is recognized as a more formal business structure that is larger than a sole proprietorship or partnership offering.  By having LLC as part of your business name you’re letting prospective partners and customers alike know that you’re a legitimate business.

Business Loans

LLC formation allows you to access capital that otherwise wouldn’t be available to you.  Your business can begin building a credit history that is separate from your own personally.  This will help your business get the capital it may require to grow.  This includes loans and lines of credit.