A limited liability company (LLC) is a type of business entity that affords the owners limited legal protection for their assets. LLCs have lesser tax as well as other financial hurdles and are quite similar in setup to a corporation. The federal government doesn’t recognize an LLC for tax purposes. It actually treats the business as if it were a sole proprietorship or a partnership.
Here are some important things about LLCs that you should know:
Easy to set up
As a rule, any kind of business can form a limited liability company. The usual exception is a professional partnership such as an accounting firm, law firms, or a doctor’s practice. Moreover, banks and insurance companies are also forbidden to form an LLC due to the immense financial responsibility they have for their clients.
If you currently have a business that you want to convert into an LLC, remember that the rules are dependent on the state where you live. What you need to do is to simply form a new LLC and then transfer the assets of your company to the new one.
Gives financial protection
In an LLC, the owners’ personal assets are considered separate and distinct from that of the company. That’s why it could not be touched if the company goes into debt or bankruptcy. It’s important to note that the levels of protection vary from state to state.
The tax benefits of an LLC give the company enormous flexibility in terms of how the IRS could levy the required tax duties. For instance, an LLC with only a couple of members could by default be taxed as a partnership. What they can do is to simply file a Form 8832 to be classified as a corporation. The single owner of an LLC company can request that the business be classified as an association taxable as a corporation.
Has simpler structure
The structure of an LLC is simple compared to that of other business organizations. There’s less paperwork to do, and there’s no limit to the number of owners. If you think this is the structure for your business, research online to know more about the advantages of LLCs.