Understand LLC Formation and Its Benefits

Understand LLC Formation and Its Benefits

LLC is an abbreviation for Limited Liability Company. It is kind of business structure like general partnership, corporation or sole proprietorship but has its own pros and cons.

What is an LLC? You will come across many terms given below, while researching on LLC.

  • LLC that has solo owner is called single-member LLC and with more owners is termed as multi-member LLC.

  • Sometimes members manage LLC, so it is called member-managed. If a manager is appointed to deal with daily LLC operations then it is called manager-managed.

  • LLC members draft a legal document on how the operations will be run, which is called LLC operating agreement.

Forming LLC business helps to protect member/s against lawsuits, reduces paperwork significantly, prevents business from getting taxed twice, as well as helps to establish business credibility.

Unlike sole ownership and general partnership, LLC gives protection to your personal asset, in case business gets litigated. Unlike corporations, LLC formation and managing is simple and not obligated to double taxation. LLC structure can opt for S-Corp tax status because maintain is easy than standard C-Corp.

Benefits of LLC

Limited personal liability

LLC owners are not individually accountable for the lawsuits or debts of the business except there is no criminal or fraud activities involved.

Simplicity

Formation of LLC is relatively easy with less paperwork. There is no need to assign directors or hold meetings or form minutes and resolution reports like C and S Corporations.

Deduction in taxes

Profits of LLC go directly to owners and their shares get reported on their personal tax returns. Therefore, LLC profits get taxed just once. In C-Corp, profits get taxed from the corporation before owners distribute and again when they report their profit share on personal tax returns.

Flexibility

Restrictions are few in ownership and management structure of an LLC. Ownership can be in the form of single member and multi-member. Management can be in the form of member-managed and manager-managed. Tax designation can be as S-Corp or C-Corp.

Access to business loans

Forming an LLC allows you get easy approval of business loans and variety of credit lines.

Enhanced credibility

LLC formation adds credibility to your business. It is popular as formal business structure and including LLC with your business name allows investors and consumers know you are serious business.

 

Categories: Business

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