Consider Forming an LLC is You Operate a Business

The business structure know as a limited liability company, or LLC, is easiest considered to be a mixture of a corporation and a partnership. To put it simply, limited liability company give a business the good parts of a corporate structure but not all of the corporate formalities.

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

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

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

Assuming that the LLC is set up correctly, and personal and business activities are completely separated, the owners are afforded personal liability protection. This is one of the biggest reasons to form an LLC instead of running a business as a sole proprietor. Also, a company generally 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 a member. There are actually several very reputable online companies that will create your LLC for a very nominal cost, saving you from having to ensure the structure is properly set up.

Typically, a member’s monetary 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 a limited liability company is similar in structure to a corporation, it offers member more flexibility. Forming LLC is most suitable for smaller companies in which the number of owners is limited.

The LLC is a fairly new type of business structure, at least in the United States. As early as 1986, LLCs were only permitted in two states. Now, the LLC is recognized in every state.