Are you interested in setting up your business entity and are looking at different structures so that you can finalize on the one that meets your requirements? Once you start putting thoughts on paper, it will be easy to determine the framework you want to establish.
There are several choices at your disposal like Sole Proprietorship, General Partnership, and Corporation along with LLC. It is now up to you to decide which one suits you best as a legal entity.
One of the principal benefits of LLC is that it is not liable to pay for the liabilities and debts occurred during its operations by the owner. It is a business structure that can be owned by one or several people.
It operates as a separate entity from the owner and is considered one of the simplest ways of protecting his assets in case the firm faces loss or is being sued. LLC can be either run by its owners, or the members can appoint a manager to handle its day-to-day running.
LLC is known as a hybrid entity that is formed by amalgamating the characteristics of a sole proprietorship, partnership, and corporation. It is a simple structure that has been created to protect the personal assets of an owner.
It is not bound by the rigid rules that a corporation has to follow and instead offers benefits like flexibility, legal protection, and less paperwork than other business structures.
The main advantage of LLC is that it is less expensive and easier in setting up. As there are few regulations and requirements, it is also simpler to maintain its operations.
1) Separate legal identity
A Limited Liability Company or an LLC firm is a business organization that is separate from its owners and members. It has its liabilities, responsibilities, rights, and assets. The LLC firm can be sued, and in turn, it can also file a lawsuit in the name of its company.
The company has the authority to purchase and own properties, make guarantees, contracts, invest its funds, and offer loans to others.
If you are looking for benefits of LLC firm, then the most important is that the clients must look at the firm to satisfy all the necessary obligations and not look towards managers or members.
2) Perpetual existence
A Limited Liability Company is said to have perpetual existence, and this has proved an essential benefit for the LLC firm. If a member is indisposed, dies, withdraws, or retires, the company will not cease its operations.
The change of ownership can take place without company dissolution.
In extreme cases the dissolution can occur only when an event occurs that has been mentioned specifically in the operating agreement, the members agree to the dissolution or administrative or judicial action is the reason for dissolving the company.
3) Limited liability
As the subheading suggests, an LLC firm limits the potential liability factor of its business owner. Its name Limited Liability Company knows it for a definite reason.
The members are personally liable only as per their investment, and this is an important benefit of an LLC firm. If an individual or another business entity faces any problems after using your products and services or is hurt on your premises, the plaintiff suing you cannot go after your assets.
Damages caused on your property, vendor disputes, and unpaid debts owed by the business are probable liabilities from which an LLC firm owner can shield himself easily. If your business loses money and you have provided personal guarantee only then you are liable to pay them otherwise not.
There are exceptions to the rule of limited liability for instance if you have committed fraud through your business, failed to meet LLC requirements, used personal money to make business payments and integrated business and personal funds then the owners will be personally liable to pay the amount.
4) Tax flexibility
An important benefit of the LLC firm is that the profits of the business are not taxed separately in addition to the taxes deposited by the members. The profits that the firm has made passes to the members as per their share, and now it is filed via individual member’s tax return.
LLC is one of the inexpensive structures that you can adapt for your business. Each year you need to complete and file complete tax forms. The IRS does not tax the LLC firm directly but leaves it on the firm to decide how it wants to be taxed.
You have several options as you can choose to file as a single-member LLC or partners in an LLC or as a corporation. It is up to the members to create an Operating Agreement that states explicitly how you want your LLC to be treated for tax purposes.
It is a fact that most owners choose the pass-through method for filing taxes.
5) No restriction on members
It is upon the particular LLC firm whether it wants to start with one member or several. It is common to form an LLC firm with a sole member, and other LLC can also own that in the form of multilayered company.
It is popular in sectors like branded products, pharmaceutical, and real estate. There is simply no restriction on the number of members, and it is one of the main benefits of an LLC firm.
A sole proprietorship has one member, S-Corp is capped at only one hundred owners and Limited Liability Partnerships or LLPs which must have more than one member.
An important fact is that although LLC firm can have numerous members, the administration part becomes a bit difficult with high numbers because you do not issue any shares that can be redeemed, sold or bought.
6) Easy to create and manage
An important benefit of the LLC firm is that it is very easy to create and manage when compared with other business structures. In some places, it is as easy as setting up a company by filling the necessary form in a few minutes and that too online from the comfort of your home.
You can pay the necessary fee via a credit card or can use agencies that have been specially created to offer their assistance against a fee. After that visit the IRS website and get an Employer Identification Number or EIN which you will need for opening a business checking account.
This is a very important step as this action will keep the personal and business expenses separate and will keep you safe through your limited liability status.
Setting up an LLC firm requires the owner first to choose the place from where he wants to set up his business, file the papers with the secretary of state’s office, and obtain an EIN.
Make sure that you are filing your annual report so that the LLC firm is kept current.
7) Less paperwork
An important benefit of the LLC firm is that it has flexible rules and stringent requirements. It is your operating agreement that creates rules for operating and managing your business framework.
This leads to less paperwork. Remember if you have not created an agreement you will be bound by the default rules that have been set up by your state.
Limited Liability Companies are easy to create and manage with little paperwork. An important benefit of the LLC firm is that it does not need to assign formal roles, record resolution and minutes and hold general meetings of the company.
It does not need approval nod from the board before taking any action related to the business.
The structure of an LLC firm is dependent on the owner’s discretion. You can have either one or several members in your firm as owners. It is upon you whether you want to handle its daily operations or set up a manager for handling the duties.
These managers can either be members or non-members decided upon through its operating agreement. It also has flexibility in terms of tax purposes because the LLC firm can choose its mode of paying taxes.
10) Increased credibility
Increased credibility is an important benefit of the LLC firm. If an owner includes LLC in its business name, it signifies his serious intent to customers because it is considered a more formal structure than a partnership or sole proprietorship company.
11) Unrestricted payment to members
If you are looking for benefits of LLC firm, then an important advantage is that there is no restriction on how payments are made to its members. The firm has the authority to pay them more or even less than their respective ownership share.
If an LLC firm is owned by a sole member or married couple, the deductible expenses and taxable revenues are passed through sole owners or joint tax returns of the couple respectively.
In an LLC firm, you cannot pay salaries to owners as all payments are treated as drawings and are not counted as partnership income.
12) Build business credit
In an LLC firm, your credit is separate from your business credit, and you can apply for the latter for it with ease. Building business credit is an important benefit of LLC firm as it removes liabilities of personal nature for any debts occurred by the firm.
This business credit will help you to acquire lines of credit and business loans easily for your firm.
13) Attract foreign investors
Investors are comfortable with LLC business structure as they are familiar with its operations. It has proved an important benefit for LLC firms which are looking to attract foreign investors for their funds.
14) Free transfer of financial interests
The ownership interest is known as membership interest in an LLC firm. It is divided into two parts management rights and financial right and is considered an important benefit of LLC firm. The financial rights give you permission to share profits and losses and also get distributions from the form.
Management rights dictate that a member cannot transfer and sell his management rights and entire interest without getting consent from the remaining members.
15) Use the cash method of accounting
Using the cash method of accounting is an important benefit of the LLC firm. In a C-Corporation, you must use the accrual method whereas in most of the firms that have opted for Limited Liability Company structure you can use this cash method where the income is not shown as earned until and unless you receive it in your accounts.
Earlier the business owners were personally responsible for the debts that their business owned to others, but with the formation of LLC, they have been successful in separating and protecting themselves from any lawsuits.
The LLC has several advantages over other types of business structures that make it an appropriate choice for owners who are looking for protection of their assets.