LLC. LP. LLP. LLLP. Corp. Inc. Co-op. P.C. The abbreviation after a company’s name does more than affect the logo; it represents a type of business structure, which will have legal and tax implications on the business. Corporations, cooperatives, limited partnerships, and limited liability companies (amongst others) all have their pros and cons, so research is crucial when you’re starting a new business and choosing what type of business you want to organize. To help you decide if a limited liability company would suit your business’s goals, today we’re discussing the benefits of forming an LLC.
Benefits of Forming an LLC
The owners’ assets are protected. An LLC provides its owners with limited liability protection. So if the business incurs debts or is sued, the owners will not be personally responsible as long as they have treated the LLC as a separate entity. In other words, you can’t pay your personal bills out of your LLC and expect to have limited liability protection. As long as you treat the LLC as a business, separate from your personal assets, creditors cannot target the owners’ personal assets to help pay off the business’s debts.
There aren’t restrictions or limitations on number of LLC owners. Do you want your LLC to have one owner? Two owners? Ninety-nine owners? No problem! Unlike S corporations, there isn’t a limit on how many owners an LLC can have. There also aren’t many restrictions on who is allowed to be an LLC owner, giving the business great flexibility. You can even have a nonresident alien or a corporation as an owner!
The management structure isn’t set in stone. Unlike corporations (which must have a board of directors), the owners of an LLC can organize its management in any way that they like. There can be managers or a board of directors, or the members (in an LLC, the owners are referred to as “members” as opposed to “shareholders”) might choose to manage the company on their own.
The members can determine how the LLC will be taxed. An LLC is not a separate tax entity in the eyes of the US government, so the IRS does not tax LLCs directly. Instead, the members decide if the LLC will be taxed as (1) a Single Member LLC, (2) Partners in an LLC, or (3) an LLC filing as a Corporation. However, the IRS does automatically classify and tax certain LLCs as corporations.
An LLC is easy to operate. Despise paperwork? Hoping to avoid exhausting recordkeeping duties? An LLC might be the perfect business entity for you. It requires very little paperwork, especially when compared to an S corporation, making it easy to form and maintain. Plus, you can avoid corporate formalities like board meetings and shareholder meetings.
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An LLC is a hybrid between a corporation and a partnership, and its taxation and management advantages make it a very popular business entity. Are you interested in forming a limited liability company? If you would like to discuss the pros and cons of an LLC, contact the attorneys at Carnahan, Evans, Cantwell & Brown if you live in or near Springfield, Missouri. We would be happy to help you compare the cost of an LLC to other business formats, and we can also help you decide how to move forward once you have chosen a format. For more information, please give us a call at 417-447-4400. We look forward to hearing from you!