LLCs provide your business with a variety of important advantages. They are among the simplest types of business to both form and maintain on an annual basis. LLCs offer Tax advantages and flexibility not available when you operate as a sole proprietor or traditional partnership. Possibly the most important aspect of an LLC is the liability protection they provide.
Compared to corporations, LLCs require less formalities and paperwork. LLC’s do not require shareholders, officers, or a board of directors. LLCs can have one or multiple “members”, or owners that manage the company. Unlike corporations that have many formal maintenance requirements such as annual meeting with corporate minutes, LLC ongoing requirements usually come in the form of a simple annual filing. This makes LLCs much easier to keep in good legal standing.
LLCs offer greater tax flexibility. By default, an LLC is a pass-through entity, which means its profits go untaxed on a company level straight to the members. Instead of being taxed on a company level like a corporation (often as well as on a personal level), members of an LLC are instead taxed only on their federal income taxes returns as individuals. Members of an LLC can choose to be taxed as a single member LLC, partners in an LLC, or as an LLC filing as a Corporation.
Similar to corporations, LLCs offer its members protection from liability. It protects your and your personal assets, such as your home, car, and personal bank accounts from liability should your business ever get sued or incur debts or face court judgments. Creditors are blocked from seeking personal assets of the LLC members. Granted, this is not absolute. If you are grossly negligent, engage in a fraud or commit a crime, then you will likely not get limited liability protection. Overall, limited liability protection is very powerful.
Early-stage businesses and all businesses for that matter can be risky. It’s always a good idea to have an operating agreement that lays out the rules that govern your business and specifies how you want your LLC to be taxed if other than the default pass-through. You’ll also need to obtain a Federal Tax ID or Employer Identification Number as part of the setup process.
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