What is an LLC and why do I need one?
An LLC (limited liability company) is one of the most popular entity types chosen by new business owners and start-ups. It's of the easiest entity types to maintain with few annual requirements or ongoing filings, but it still provides the invaluable benefit of liability protection.
What is Liability Protection?
Filing a limited liability company separates your personal assets from those of the business, preventing you from being personally or financially responsible for debts or legal matters relative to your business. Members are still liable, but only to the extent of their investments in the business. If, for instance, your company is involved in a lawsuit, the assets of the LLC itself could be in jeopardy while the assets of the members would not.
What kinds of businesses typically choose to file as an LLC?
Limited liability companies are easy to maintain while remaining extremely flexible, so it's not surprising that it is a popular choice among owners of businesses of all different shapes and sizes. Many LLCs only have a single member (owner), while the LLC structure itself allows for an unlimited amount of owners, giving power to you, the owner of the business to determine its structure.
For businesses in industries, like construction, where unforeseen circumstances and hazardous conditions may hold the owner responsible, consider incorporating as an LLC. This entity may not be the best choice for businesses that plan on raising capital through outside investors. LLCs are not public structures and do not have shareholders, so taking a company public is not an option. However, in the event that you'd like to take your business public you may switch to a public legal structure, like a C corporation, later on.
What are the maintenance requirements of an LLC?
LLCs have fewer ongoing requirements compared to their corporation counterparts. For example, an LLC is not required to keep minutes or hold annual meetings, have a board of directors, or is held to the same record keeping standards of a corporation. The state the LLC is formed in will have its own set of annual requirements, including required business licenses and permits, which vary from state to state. Be sure to check in with your Secretary of State to ensure you don't accidentally missing applying for anything.
Are there tax advantages for LLCs?
Depending on how your business is structured, the amount of revenue your business earns, and several other factors, forming an LLC can provide potential tax benefits for business owners. LLCs are allowed to choose how they want to be taxed, either as an S corporation or C corporation. LLCs don't pay their own taxes directly, the income of the business its passed on to the members of the LLC through "pass through taxation." This means that a member is subject to self-employment taxes, but at higher levels of income, the LLC can often pay a lower base tax rate than a C Corporation. The best way to determine your potential tax benefits is to consult an accountant. Every Package Includes