Benefits of Starting Up Your Small Business as a Limited Liability Corporation (LLC)
You should carefully consider the type of corporate structure you wish to set up. When you have the right structure in mind, your business will be successful. Limited Liability Corporation (LLC) is the best for your startup. Below are five of the paramount reasons for using a Limited Liability Company. An LLC is the top legal way to set up a business with a good set of protections for your assets. Many businesses are better off with a Limited Liability Company (LLC). It creates the right amount of flexibility for business management. In addition to that, there is a provision of vital protections for founders and partners.
You can safeguard your assets
Looking after personal assets from business creditors is the primary motivation for going for an LLC. Creation of the LLC structure protects the startup’s personal assets from lawsuits aimed at the company. A general partnership is the most hazardous entity to start. It would be best if you gave the sole proprietorship more consideration. Many founders transform their LLCs to an S-Corp or C-Corp as soon as the expansion and growth period elapses. That is due to an LLC is limited in its scope of performance when it comes to acquisitions and mergers. Businesses that are in there beginning stages find LLCs sufficient.
If an LLC is declared bankrupt, the members will not be required to pay the LLCs debts with their cash. The assets of the LLC should cover the debts and liabilities of the business. When they are inadequate, the creditors cannot make the owners clear up the debt. Their debt was with the LLC, not with the owners of the LLC.
Registration Is Effortless
Being fast and trouble-free makes an LLC the ideal company structure. Registration can occur without an attorney. That is according to Brett Hamilton, the creator of Simple.be. He further points out the filing fee for an LLC is only $ 100. This only applies to some states such as his native Oregon. When you register your LLC with the state, you obtain your Employer ID number (EIN). The IRS provides the Employer ID number. You can now access business bank accounts and business checks. Within a short period, you are all set for business. Mostly, the manager of the LLC, who is the owner, has the power to get into contracts as the LLC. Furthermore, an originator can assign their patents to the LLC.
It is flexible
An LLC structure accommodates new changes easily. Once you set up an LLC structure to your startup, business operations will be more efficient. You can sell an interest in the entity to another person. On top of that, you can add new partners to the organization. LLCs have fewer restrictions on many administrative items in comparison to other business structures. A C-Corp business structure requires minutes in making board decisions. Hence, LLC structures are more stress-free than other business structures.
Tax Benefits of an LLC
When it comes to taxation, LLCs obtains the finest of all domains. LLCs lack in their federal tax classification. However, they can adapt to sole proprietorships, partnerships, S corporations, or C corporations. With no doubt, the Internal Revenue Service classifies LLCs according to the type of ownership. LLCs can be either under sole proprietorships or under partnerships. Therefore, LLCs can always benefit from the “pass-through” taxation. The “pass-through” taxation involves the LLCs evading corporate taxes or LLC taxes. As an alternative, the LLCs income and expenses go through to the owner’s tax returns. The owners will pay personal income tax on any profits.
On the other hand, taxation for traditional C corporations doubles up on distribution to shareholders. Once an individual level and another at the corporate level. S corporations evade double tax and receive pass-through treatment. Then again, not all corporations are eligible to pass through treatment. Thus, using LLC as a structure for your startup is beneficial.
Accommodative profit distributions
There is flexibility in the distribution of profits among owners of the LLCs. They do not distribute profits equally or according to ownership percentages. A perfect example of such a situation is when two people have similar interests in an LLC. Hence, they agree that one of them will acquire more profit shares since he or she made more contributions to the business startup phase.
Conversely, Corporations ensure an equal distribution of profits to shareholders according to the number and types of shares they hold. In addition, Corporations offer their owner’s limited personal liability. LLCs have a flexible and straightforward business structure that is suitable for many small businesses. LLC owners enjoy various benefits. They are open to LLC tax benefits, management flexibility, and minimal recordkeeping and reporting requirements. LLC owners also enjoy limited personal liability. It would be best if you made a wise decision when it comes to your startup structure.
