Tap to Read ➤

7 Reasons You Should Consider Starting a Limited Liability Company

Kevin Gardner Dec 16, 2019
If you are thinking about starting a business, you should consider forming a limited liability company. Even if you have a business already established as another entity type, you may want to think about converting to an LLC. This structure has many of the benefits of other entity types but with less formality, making it perfect for small businesses.

Easy to Create

Compared to other entity types, it is easy to create an LLC. There is less paperwork than a corporation and you don’t have to follow as many rules for how to set it up. All you need to do is submit some basic paperwork to the state and set up your operating agreement.
While you should hire a lawyer or an LLC service, forming an LLC is relatively simple and inexpensive to do compared to other entity types.

Flexible Management

Corporations have a fixed management structure that they have to follow. They need a board of directors and officers to run the business. How these are created is also prescribed by law. Conversely, an LLC can be managed by its owners in a few different ways.
You may opt to be member-managed, meaning the owners run everything, or manager-managed, meaning you designate managers. It is a more flexible option.

Limited Liability

The main reason that people form LLCs is to gain the advantage of limited liability. If you have a sole proprietorship or partnership, your personal assets may be on the line to cover business liabilities. Conversely, in an LLC, your liability is limited. That means that you don’t have to worry about your business’s debts turning into your personal debts.

Offer Control Over Taxes

The LLC structure can choose how it will be taxed by the IRS. A sole proprietorship or partnership does not pay taxes as a business at all. Instead, the owners pay the taxes. An LLC can choose to be taxed like this, a setup called a pass-through organization. A corporation can pay its taxes as a business.

Skip Double Taxation

With an LLC, you can avoid the double taxation of a C-corporation. This happens because the business pays taxes on its profits. Then, the owners pay taxes on their dividends and capital gains. The result is that the same profits can be taxed twice.
An LLC is able to avoid this by opting to be taxed as a pass-through entity. This tax benefit can save you a significant amount of money over time.

Variable Profit Distribution

In an LLC, the owners have a lot of control. This includes choosing how profits will be distributed. Whereas in a corporation, there are set rules about the classes of shares and how profits can be paid out as dividends, LLCs don’t have those same rules.
You can choose to create them in your operating agreement. However, the members are not legally bound to any rules other than their own.

Flexible Ownership

Similarly, you can change the ownership of an LLC relatively easily. Again, the rules for how this works are set forth in your operating agreement. If you want to do something differently, all you need is a vote by the members. This informality means that you can use an LLC very flexibly.
If you want to bring in a new partner, that is an easy thing to do compared to adding an owner to a corporation.
These benefits of an LLC make it one of the most favorable options for forming a business entity, especially for small businesses. If you want to enjoy the liability, flexibility and tax benefits of an LLC, you can form one quickly. You could be the proud owner of a new LLC within a matter of days.