LLC Formation is a Great Idea Under Most Circumstances

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 give a business many of the benefits of a corporation without all of the protocols usually associated with a corporation.

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

An LLC does not suffer from the double-taxation issue that a corporate structure does. To simplify this, because the tax obligation is passed on directly to the owners, income tax is paid just one time. However, a limited liability company is still obligated to pay state (assuming there is any) and federal payroll taxes.

At the time of LLC formation, you choose how to handle income taxes. You can be taxed like a sole proprietor, a C corporation, or an S corporation. The choice is yours.

If the LLC is properly set up, and you completely separate business and personal happenings, the owners can look forward to certain 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 business earns more respect when it has a formal structure, such as a limited liability company.

LLC incorporation is done by a person who does not necessarily have to be an owner. You can actually use an online company to form your LLC for a very reasonable charge, which means you are assured that everything is properly set up.

Typically, a member’s monetary liability is limited to the financial contribution made by that member. When you are operating as an LLC, you can bring in more than one partners, who can be active in the business, or serve as silent investors.

While a limited liability company is similar in structure to a corporation, it offers its owners more flexibility. Incorporate LLC works best smaller companies in which the number of owners is limited.

The limited liability company is a fairly new form of business structure, at least in the US. As a matter of fact, as early as 1986, LLCs were only allowed in two states. Today, you can form a limited liability company in every state.