Advantages Of An LLC

The LLCs are very popular among small businesses however, it is equally popular amongst online businesses and investors. Today we are going to take a look at the advantages of LLC.

If you are thinking about forming a business this article will help you move forward especially if you are interested in Limited liability companies.

There are numerous types of business models from sole proprietor to corporation. but LLC is the form of business that stands out among the best as you will get the best of both worlds.

Now without further ado let's dive and see the advantages of an LLC.

Number 1: Limited personal liability

To understand this advantage I am going to share an example you are a sole proprietor or doing business in partnership. They have no protection they are actually the same as you. You are responsible if you get sued or get a lawsuit. Your whole business and personal assets can be seized. However, if you form an LLC it will become a separate entity from you.

Think like that the LLC is a different person in case of any mishap your personal assets like bank accounts, home, and vehicles are safe. The LLC is liable for those damages and you don't have to worry about your personal assets.

In short, an LLC is a separate entity and it will be treated differently from the person who owns it. the owners are not at risk of paying off debts but the LLC is liable and the personal assets of the owner or owners of the LLC are protected.

Number 2: Minimum paperwork

If you are thinking about corporations yes corporations also have limited liability however, it comes with a lot of paperwork. You have to hold annual meetings and need to have shares and shareholders. Pay the annual fee and charges and must keep long recordkeeping.

However, the LLC does not require anything like that except for paying annual fees and some of the states even don't have annual fees. so, limited liability companies are a great form of business. Also, some states even don't have annual report filings for LLCs.

Number 3: Tax advantages

The best thing is that you have options when it comes to taxation. You will get the best options. The LLCs do not have to taxes themselves. They have pass through taxation system.

The IRS automatically classifies the LLCs as sole proprietors or partnerships. If you are running a business all by yourself meaning you have a single-member LLC you will be treated as a sole proprietor. If the LLC has more members it will be treated as a partnership.

Moreover, you can classify your LLC as C-corporation and S-Corporation but that would not be a wise idea because C-corporation has double taxation on the corporate level and personal level. However, S-corporations have pass-through taxation but not every company is eligible for that.

Pass- through taxation means that the profits and expenses of the LLC will be passed to the owner or owners of the LLC. They will file the return personally on their tax returns. The LLC won't be taxed. So, you will get benefits of sole proprietor or partnership but will have protection of limited liability company it is best of both worlds.

Number 4: Flexibility in ownership

Yes, S-corporations have pass-through taxation but they don't have owner flexibility. For Instance, they can't have more than 100 shareholders, they can't have any foreign shareholders. Moreover, they can't have corporations as a shareholder.

However, LLC does not have ownership restrictions anyone can be the owner of an LLC as long as they are not from a restricted country. Foreigners can form an LLC in any state of the United States. The pass-through taxation will apply and LLCs can have as many members as they want.

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Number 5: Flexibility in Management

If you take a look at corporations you will realize that they do not have management flexibility. They have to follow the same rules for instance they must have a board of directors and officers who run day-to-day business. Moreover, they have to hold annual shareholders' meetings in which they have to elect a board of directors and need to make other important decisions about their company.

The LLC is free from that. The LLC offers flexibility in management. The LLC owners don't have to follow this structure they can run a business the way they want and make decisions according to their business needs.

Number 6: Profit Distribution

The LLC owner or owners do not have to distribute profits equally even if they have the same investment. They can agree that one party will receive more profit than the other and there will be no legal obligations. If the LLC is a single member the owner can keep all the profits without worrying about paying shareholders as there will be none.

However, if you form a corporation you need to pay according to every shareholder investment. Meaning the number of shares they hold.

Wrapping it up!

LLC gets the best of both worlds. If you are a small business, sole proprietor, or doing partnership I highly recommend forming an LLC as it shows you are serious about your business, the banks, the investors, and people treat LLCs with more respect.

Also, your business has limited personal liability, flexible management, and less paperwork. It is less hectic compared to corporations. And if you grow big I hope you do you can easily transform your LLC into a corporation.

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