A limited liability company (LLC) is a business entity structure in which owners aren’t personally liable for the business’s debts and obligations. LLC is treated by default as pass-through entities for tax purposes. This means the LLC itself doesn’t pay income taxes, but the profits and losses of the LLC pass through to the owners’ tax returns. An LLC can choose to be taxed as a corporation.
The LLC, or limited liability company, is a relatively new business entity type and is somewhat of a hybrid between a corporation and a partnership. LLC is considered a legal entity that’s separate from the owner or owners, meaning you aren’t personally liable for any legal or financial issues your business may run into.
There are many things to consider when deciding whether you should form an LLC, including the costs of formation and where you see your business headed. Keep reading for a comprehensive breakdown of the pros and cons of LLC, how to form one, and more.
Benefits of Forming an LLC
Benefits of Forming an LLCThere are many things that you will need to consider when deciding whether to form an LLC, including your business’s needs and your plans for the future.
Reduce Liability
LLC creates a level of separation between owners and their businesses. This means that if their company were to be sued, the owner would not be personally sued, only the business.
Besides, the personal assets of owners in a limited liability company are not on the line if the company were to go into debt. Of course, there are exceptions where a court will pierce the veil and hold owners personally liable, but as long as the business maintains independence from the owners’ finances, you should be safe.
Less Complex Than Corporations
A reason that LLC is often favored for smaller individually run businesses is that they require less paperwork to establish and operate. In contrast to corporations, LLC needs less record-keeping and does not require shareholder or director meetings in the same way that C-corporations or S-corporations do. If you find yourself busy and don’t plan on hiring additional staff to help with paperwork any time soon, you might find this attribute incredibly useful. That said, LLC does require more paperwork than a sole proprietorship or general partnership
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