February 22nd, 2009

Forming an LLC May Be a Wise Choice For Your Small Business

The business structure know as a limited liability company, or LLC, is easiest considered to be a composition of a corporation and a partnership. To put it simply, an LLC offers many of the benefits of a corporate structure but not all of the corporate formalities.

The owners of an LLC, who are called member, get treated like a partnership for tax purposes. It passes through taxes on income directly to its members, so, unlike a corporation, the LLC itself never pays taxes.

An LLC does not suffer from the double-taxation issue that a corporation does. In other words, because the tax obligation 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 formation, you choose how to handle income taxes. You have the choice to be taxed like a sole proprietor, a C corporation, or an S corporation. The great thing about an LLC is that you get to decide how to handle paying taxes.

If the LLC is set up correctly, and you completely separate business and personal happenings, the members can look forward to certain personal liability protection. This potential protection is one of the biggest reasons to form an LLC instead of operating as a sole proprietor. Also, a business generally earns more reverence when it has a formal business structure, such as a limited liability company.

Forming an LLC is done by someone 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 reasonable cost, 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. And an LLC’s structure allows you to bring in multiple partners, who can either be actively involved in the business, or just contribute money.

A limited liability company is a business organization, or business structure, that is very very much like a corporation, but allows member more flexibility. Creating an LLC works best a smaller business in which there doesn’t have to be too many owners.

The limited liability company is a relatively new type of business entity, at least in the United States. As a matter of fact, as early as 1986, you could form a limited liability company in only two states. Now, every state recognizes this business structure.

This entry was posted on Sunday, February 22nd, 2009 at 12:46 am and is filed under Resources. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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