LIMITED LIABILITY COMPANY (LLC)
There are no secrets to success. It is the result of preparation, hard work, and learning from failure. -Colin Powell
WHAT IS A LIMITED LIABILITY COMPANY (LLC)
The LLC is a corporate structure according to which, the members of a business cannot be held personally accountable for the liabilities and debts of a company. Companies which have a limited liability entity are actually hybrid entities which combine the different characteristics of sole proprietorship, a corporation or a partnership. This type of entity offers a lot of flexibility.
One interesting feature of a Limited Liability Company is that the flow through taxation feature for all company members in a LLC is similar to that in partnerships,whereas, all the other features of an LLC are identical to that of a corporation.
A Limited Liability Company can be set up by filing of organizational or incorporation documents with the state you plan to set the business in. The related filing fee is also required to be paid. It is a beneficial feature of LLCs that they have few ongoing formalities as well as obligations, compared to corporations.
WHAT ARE THE BENEFITS OF A LIMITED LIABILITY COMPANY (LLC)
The advantages and benefits of choosing a Limited Liability Company for your business are:
- No requirement of filing for a corporate tax return. The owners of the company share the loss and profit on the individual tax returns. This way, they avoid double taxation.
- Members of an LLC get to decide how they will want to be taxed by the authorities. They can opt for a single member LLC business, in which the business structure will be taxed like a sole proprietorship company. The taxes are charged on the single member’s personal federal tax return. If there are partners in an LLC, they can choose to be taxed like traditional partnership companies. If the LLC chooses to file as a corporation, members can also decide within the operating agreement to be taxed as a corporation. This flexibility on tax payments is what makes LLCs a popular choice amongst entrepreneurs.
- There is no residency requirement. Company owners need not be country citizens or hold permanent residency.
- Owners have limited legal obligation, with restricted liability for business obligations and debts. The members are not held personally liable for the company debts, or any court judgments that are incurred by an LLC.
- A company holds enhanced business with suppliers, partners and lenders, being an LLC.
- A Limited Liability Company can share the business profits much easier than other forms of corporate entities. Members of the business can share the profits in a manner they deem suitable, which makes an LLC a popular form of corporate entity among entrepreneurs.
- One of the main advantages associated with an LLC business entity is the level of operational ease which becomes a part of the company. In comparison with an S corporation, an LLC has smaller startup costs linked with it, and there is less amount of registration paperwork required for the legal company processes.
- The profit and loss to be shared by the members of the business can be allocated in a different manner entirely to their respective ownership interests.
- Limited Liability Companies have less stringent compliance requirements to take care of, compared to other corporate entity options.
- The creditors of an LLC are foreclosed from hunting out the assets of the members, a shield which is not available in a partnership or sole proprietorship.