If you are planning to form a small business but are still undecided about which business structure you want to consider. This article may help you on that course.
LLCGuys suggests, that a limited liability company, or LLC, is a type of business structure that provides liability protection to its owners. It specifically combines the positive attributes of a corporation and sole proprietorship. The former’s attribute refers to its limited liability protection services, while the latter’s attribute refers to its pass-through taxation services. Suppose you are in the process of starting your new business. In that case, you may want to consider creating an LLC as it is practically simple and adaptable and is considered a perfect structure, especially for many small businesses.
If you are thinking of considering forming an LLC structured business, here are the main advantages of an LLC and using an LLC formation service.
- Provides Personal Liability Protection
The primary benefit of having an LLC structured business is that it limits the personal liabilities of its owners. This means the LCC structured businesses are practically accountable for their financial obligations or debts. If the LLC falls into debt or receives a lawsuit, for instance, the owner’s personal financial assets, including their home, properties, and bank accounts, are protected. They will not get affected during the debt settlement of their business.
This demonstrates that LLC is indeed a better business structure than the others. So, suppose your business structure is sole proprietorship or partnership. In that case, one’s personal assets may be at risk since these structures do not offer the service of personal liability protection, which means that your business’ debt or any financial obligations might affect one’s personal assets.
- Does not require a lot of Paperwork
Although corporation structured business also offers personal liability protection, they may still need to comply with specific requirements that might be too hassle to prepare or is simply not applicable for small businesses. Corporations are required to prepare annual reports, keep meeting minutes, have a board of directors, and hold shareholder meetings.
Unlike LLC structured businesses, they are less regulated than the structure of corporations, do not require too much paperwork, and are less complex to operate. They are not required to prepare annual reports and other business paperwork required for corporations. LLCs are only required to work with the secretary of state (SOS) to file an article of an organization that may contain the LLC’s business name, location, information of its members’ identity, outlined duration of operation, and other mandated information.
Choosing a reputable LLC formation service (for example Northwest Registered Agent LLC service) – you will be guaranteed to receive your LLC in a timely manner and professional support throughout all of the years of operation.
- Tax advantages
As an entrepreneur, you are expected to take responsibility for paying a variety of taxes, whether in local, state, or federal government. These may include income tax, additional payroll taxes, excise tasks, permits and licenses, and more.
Therefore, if you are in the process of forming a small business, LLC is a good choice as it is considered the best business structures in terms of taxation. It is noted that they do not have their federal tax classification, which means that your LLC structured business is not classified in terms of federal taxes. Corporation-structured businesses would struggle because of double income taxation. They are traditionally taxed twice on distributions to stakeholders. At the same time, LLC-structured enterprises benefit from “pass-through” taxation, which means that they don’t pay any corporate taxes or LLC taxes.
- Provides Flexibility Ownership
LLCs are indeed beneficial because of the fact they give pass-through taxation without any restrictions in terms of the number or types of owners they can have. Unlike S corporation structured businesses, they may enjoy the service of pass-through taxation, however they have ownership restrictions; for instance, they are limited to have not reached above 100 shareholders.
- Provides Management Flexibility
If you want to manage the whole system of your small business, an LLC business structure would be a great choice because they simply do not have a very formal management structure like corporations. Their management comprises of a board of directors that manages the decision-making in the company. On the other hand, owning an LLC-structured business gives you flexibility in terms of your business management where you can have added choices for yourself in terms of the way you run and decide on your business.
- Allows Profit Distributions Flexibility
LLCs’ flexibility in their process of owners’ profit distribution where it is not required and necessary for them to distribute the profits equally or in accordance with the ownership percentages. Two owners of an LLC structured business, for instance, may consider the way of profit distribution according to their inputs to the business’s startup phase. One may receive less share, while a greater share for another according to their greater contribution to the startup phase of their business.
However, a corporation structured business, alternatively, does not adopt this method of profit distribution as they are required in distributing profits to all shareholders in line with how many and share types they hold.
Moreover, if you are not sure where to start the process of establishing an LLC, here are the basic steps to forming one. First, you may start by creating a unique name. Make sure that it has uniqueness and is distinguishable from the other business names and that you have regarded your state’s business naming regulations. Second, hire a registered agent who will manage the process of receiving official correspondence for the LLC. Third, you may start the process of filing an article of organization, which will officially spell out your business’s existence, including your business name, location, and management type. The next step is to prepare an operating agreement that includes specific information about the management structure or the operating rules of your business, the ownership, authorities, and duties of members, including the managers, and the process of profit distribution. While the last step is creating a business bank account, this step is very important and has the same reason why you have a separate contact number for your business. Having a separate bank account for your business allows you to easily distinguish your business’s financial status from your personal income and expenses.