Starting or have an existing business, here are 6 benefits of an Limited Liability Company (LLC)
Being a business owner for close to 20 years now, I remember when there was a time when I thought like so many new entrepreneurs that being a sole proprietor was easier and less expensive. Well lucky for me, I quickly learned that this is not the case and actually found out that it could actually be more costly in the long run! During my career, I have been blessed to have so many wonderful role models and holding an M.B.A didn’t even prepare me for the tax knowledge that I gained the hard way over the years.
My recent visit to the Tax Hive headquarters I was able to gain even more insight on the amazing products and services designed to assist small businesses to maximize their profits. However, before we get into all of those, I want to share some of the benefits of an LLC. It is my hope that if you are not structured as one, you can at least begin to consider it. Take a look at this list, some of the benefits may surprise you.
1. Less Paperwork
LLCs are not required to hold annual meetings and usually are not required to keep extensive records. (Although as a business owner you should always keep up your books and records.) In many states, LLCs do not need to file annual reports.
2. Advantages of Ownership
LLCs provide pass-through taxation without any restrictions on the number and type of owners they can have.
3. Management Accommodations
LLCs don’t have to use this formal structure, and an LLC’s owners have more choices about the way they run the business and make decisions.
4. Less Personal Liability
A Limited Liability Company means that it limits the personal liability because an LLC is legally separate from its owners. This Limited Personal Liability allows you a layer of protection. LLCs are responsible for their own books, their own debts and obligations, and although you can lose the money you have invested in the company, personal assets such as your personal bank account, your cars, your home cannot be used as a means to collect on those business debts. Your personal assets are also protected in the event a business partner, an employee, or the business itself is sued for negligence.
5. Profit Distribution Flexibility
LLCs have flexibility in the way they distribute profits to their owners, and they aren’t required to distribute them equally or according to ownership percentages. If two people share equal interests in an LLC, but they may agree that one of them will receive a greater share of the profits because he or she contributed more money, work, ideas or labor in the business’s startup phase.
6. Tax Advantages of an LLC
Depending on whether they have one owner or more, the IRS classifies LLCs as either sole proprietorships or partnerships. This means that LLCs can always take advantage of “pass-through” taxation where the LLC does not pay any LLC taxes or corporate taxes. Instead, the LLC’s income and expenses pass through to the owners’ personal tax returns, and the owners pay personal income tax on the profits. LLCs get the best of all worlds when it comes to taxes. LLCs don’t have their own federal tax classification, but can adopt the tax status of sole proprietorships, partnerships, S corporations or C corporations.
It’s tax time know the benefits of an LLCTweet