Why Most Entrepreneurs Choose an LLC as Their Business Structure
When you’re choosing the right type of entity for your brand-new business, an LLC (which stands for limited liability company) is probably the first type you’ll consider. An LLC is one of the most popular business structures, providing ample benefits to the owners. Here are a few of the top reasons why LLCs are so popular.
1. You Will Get Maximum Asset and Liability Protection
When starting a business, you worry about putting your personal assets at risk and being held liable if your business is sued or goes into debt. With and LLC, your personal and business assets will be treated separately in the eyes of the law. You can still be sued, but creditors will only be able to go after your LLC’s assets. Your home, vehicle, and bank account will be safe. This is true of all the owners of the business (known as members). This level of asset protection is especially important in the beginning stages of owning a business.
Also, as the name implies, owners of LLCs benefit from limited liability. By forming an LLC, only the LLC is liable for the debts and liabilities incurred by the business—not the owners or managers. If the LLC is found liable for the negligence or wrongdoing of its owner or employee, the LLC’s money or property can be taken by creditors to satisfy a judgment against the LLC. But the LLC owners would not be personally liable for that debt.
2. Corporate Flexibility
Another benefit of an LLC is corporate flexibility. That means its easy to add and remove members when needed, choosing how you want your business run (member or manager-managed), and minimal record-keeping make the LLC and entrepreneurs dream.
With an LLC, it’s easy to add new members and get rid of old ones who no longer want to own part of the business. There can be as many members involved with the business as you would like and there is no need for ownership to be shared equally. Every member may own the equal percentages or a different percentage of the LLC. This gives you the flexibility to run the business exactly as you’d like to.
You will also have the option of creating your LLC as a member-managed or manager-managed business. Member-managed LLCs are ideal for small businesses. They give each member ample input on how the business should operate. On the other hand, manager-managed LLCs function more like a corporation, which is great if one member is bringing more experience to the table than capital. If the LLC owner would rather not take such an active role in the business, a manager-managed LLC will be the best choice. This level of flexibility means you can truly choose what’s in the best interest of the business.
An LLC will generally be simpler to run compared to other business structures. There is less paperwork for you to maintain. You aren’t required to hold annual meetings with shareholders. This makes the upkeep for an LLC easier and less time-consuming, which frees up your schedule so you can focus on other aspects of your business.
3. You’ll Have the Advantage of Pass-Through Taxation
There are also tax advantages to choosing an LLC. Entrepreneurs love the fact that they experience pass-through taxation. This means that rather than the entity being taxed, taxation passes through to the LLC members. Every member of the LLC will report their share of income, gains, losses, deductions, and credits individually at the tax rate that applies to each member. Each member should receive a Schedule K-1 from the LLC so they can report it on their individual Form 1040.
The only exception to this is if you’ve chosen for the business to be taxed as a C-corp. In that case, the LLC will be taxed at the corporate level first, then at the member’s individual tax bracket. This is called double taxation. Entrepreneurs love LLCs because profits are only taxed once, so LLC members avoid double taxation.
Start Your Limited Liability Corporation with the Help of Enterprise Esquire
Even if you’ve decided that an LLC is right for you, you can’t start it alone. You’re going to need business formation services from an experienced law firm. The Law Office of Alexis Hart McDowell, also known as the Enterprise Esquire is happy to help!
You can always schedule a FREE call with us because we want to see your LLC succeed. Let’s make sure your business is on the right track from the very beginning! Check out our LLC formation packages.
