subject: Would You Benefit From Llc Formation? [print this page] So what is an LLC? LLC stands for Limited Liability Company. A Limited Liability Company is a legal business entity that handles daily business activities like a sole proprietorship for single member LLCs or a partnership for multi-member LLCs. Forming an LLC provides personal limited liability protection for the owner(s) much like a corporation. However, since it is not a partnership or a corporation, owners are not called partners or share holders, they are known as "members".
LLCs can offer many benefits if you own a small business. They're easy to form and for the most part there is not much paperwork involved in the initial LLC filing. Limited liabilty companies can provide personal asset protection for their members. Most state require filing an annual report and paying an annual fee in order to maintain good standing. Further, properly maintaining and operating an LLC, as well as following state compliance statutes will help protect personal assets if the company is ever sued!
LLCs provide additional benefits since they are a combination of partnerships and corporations. As a result an LLC is less formal and more flexible than a typical corporation and offers protection and certain advantages that are similar to those of a corporation. For example, properly maintaining and operating an LLC protects the members from debt liability of the company. Their assets are also separated from those of the LLC, so personal assets are afforded protection as well.
Another advantage of an LLC is that while they are traditionally taxed as a sole proprietorship or partnership, they can also elect to be taxed as a sub chapter s corporation. LLCs have what is known as pass-through taxation which differs from the double taxation associated with c corps. Members of an LLC will only be required to pay taxes on their earnings instead of paying both corporate and individual taxes on the same earnings
Unlike a sub chapter s corporation, which limits the number of share holders, there is no limit on the number of members an LLC can have. Also LLCs are not required to have bylaws, hold meetings or record minutes. However, members of an LLC should develop an operating agreement which outlines how the affairs of the business will be conducted.
Another great benefit if your form an LLC is the transferability of ownership interest. The company will survive even as changes are made to the membership of the LLC.
LLCs also give you more options for raising capital. You can admit new members by selling membership interests. You can even create new classes of membership interests with different voting or profit sharing characteristics.
LLCs offer many advantages and benefits for small business owners. They are fairly easy to set up and offer personal liability protection for their members. Flexibilty and tax considerations offered by LLCs make them a viable business structure and worth sonsideration when deciding what is right for your business.
