LLC Formation is a Great Idea Under Most Circumstances

Posted April 7th, 2009 by Nelson Tan. Filed under Uncategorized

The business structure know as a limited liability company, or LLC, can be best considered to be a composition of a partnership and a corporation. To put it simply, limited liability company offers the best parts of a corporate structure without all of the protocols usually associated with a corporation.

The owners of an LLC, who are called member, are looked upon as a partnership when it comes to taxes. The LLC passes through taxes on income directly to its owners, so the LLC never pays income taxes itself, unlike a corporation.

An LLC does not suffer from the double-taxation problem that a corporate structure does. To simplify this, because the tax liability is passed on directly to the owners, income tax is paid just one time. However, an LLC must still pay state (if applicable) and federal payroll taxes.

At the time of LLC form, a decision is made about how you choose the tax treatment desired. You have the choice to be taxed like a sole proprietor, a C corporation, or an S corporation. The choice is yours.

Assuming that the LLC is properly set up, and personal and business happenings are completely separated, the owners are afforded personal liability protection. This is a big reason why people choose to form an LLC versus running a business as a sole proprietor. You should also consider that a company generally earns more reverence when it has a formal structure, such as a limited liability company.

Forming LLC is performed by someone who does not necessarily need to be a member. There are actually several very good online companies that will form your LLC for a very reasonable cost, saving you from having to ensure the structure is set up correctly.

A member’s financial liability is limited to the amount of money contributed by that member. And an LLC’s structure allows you to bring in more than one partners, who can either be actively involved in the business, or just contribute money.

While an LLC is similar in structure to a corporation, it offers more flexibility to its members. Forming an LLC with an incorporating online company is most suitable for a smaller business in which the number of owners is limited.

In the US, the limited liability company is a relatively new business structure. As a matter of fact, as early as 1986, you could create a limited liability company in only two states. Today, the LLC is recognized in every state.

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