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Creating an LLC is a Viable Option for Most Entrepreneurs
A limited liability company, or LLC, can be best described as being a composition of a partnership and a corporation. Simply explained, an LLC give a business the good parts of a corporate structure but not all of the corporate formalities.
The multiple owners, called members, of an LLC are looked upon as a partnership for tax purposes. The LLC is a pass-thru tax structure, so income taxes are paid by its member, so the LLC never pays income taxes itself, unlike a corporation.
An LLC never worries about the double-taxation issue that a corporate structure faces. To simplify this, because the tax liability is passed on directly to the owners, income is only taxed once. Though, a limited liability company 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 choice is yours.
Assuming that the LLC is properly set up, and you completely separate business and personal happenings, the members can look forward to certain personal liability protection. This potential protection is a big reason why people choose to form an LLC versus running a business as a sole proprietor. You should also consider that a business earns more reverence when it has a formal business structure, such as a limited liability company.
Forming an LLC is done by a person who does not necessarily have to be an owner. You can actually use an online company to create your LLC for a very reasonable charge, saving you from having to ensure everything is set up correctly.
A member’s financial liability is limited to the amount of money contributed by that member. And an LLC’s structure allows you to bring in multiple partners, who can be active in the company, or serve as silent investors.
While an LLC is similar in structure to a corporation, it allows its owners more flexibility. Forming LLC works best a smaller business in which the number of owners is limited.
The limited liability company is a fairly new form of business structure, at least in the US. As early as 1986, you could form an LLC in only two states. Today, the limited liability company is recognized in every state.
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