Limited Liability Company: An Excellent Choice for Entrepreneurs
An LLC, or limited liability company, can be considered to be a marriage between a corporation and a partnership. Basically, with an LLC you get many of the same benefits that a corporation enjoys, without the majority of the formalities that come with a corporation.
The multiple owners, called members, of an LLC 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.
Because of this, an LLC does not suffer from the double-taxation issue that plagues a corporation. This simply means that income is only taxed once because it flows right through the LLC, directly to the owners (or employees). But an LLC must pay federal and any applicable state payroll taxes.
You choose the tax treatment you desire when you set up your LLC. You can be taxed as a C corporation, an S corporation, or treated like a sole proprietor. With an LLC, the decision is yours to make.
Certain personal liability protection is afforded the members of a properly set up LLC, but business and personal activity must be keep completely separate for this to happen. This liability protection is one of the reasons people choose an LLC over sole proprietorship. Also, as an LLC a company usually earns more respect in the customer’s eyes.
A limited liability company is formed by someone who does not necessarily need to be a member. There are actually several very good online companies that will form your LLC for a very nominal charge, saving you from having to ensure everything is set up correctly.
A members liability is limited to the financial contribution made by that member. And an LLCs structure allows you to bring in multiple partners, who can either be actively involved in the business, or serve as silent investors.
An LLC gives its owners greater flexibility than a corporate structure would, but at the same time it is very similar to a corporate structure. A small business with a limited number of owners would be a perfect candidate for the LLC structure.
In the United States, the limited liability company is still a relatively new form of business structure. Just 20 years ago, only two states allowed the formation of LLCs. Today, every state recognized the LLC as a valid business entity.
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