The Benefits of Forming an LLC
A Limited Liability Company is a simple and flexible business structure that passes through taxation and with the limited liability of a corporation. Each state has its specific rules and regulations when forming an LLC. However, most of these rules are generally the same. The purpose of forming an LLC is to separate the owners from the business. This means that the owner’s assets are protected and cannot be used to pay the business debts or liabilities. Notably, if the LLC has more than one owner, they have to complete a tax return. However, if the LLC has one owner, the LLC allows for pass-through taxation at the entry-level.
Basic Steps of Forming an LLC
Although the starting process of an LLC is simple and easy, it requires some guidelines. Also, there are some compliance and administrative tasks to be done to form an LLC. Here are basic steps to follow to ensure that the LLC is successful and compliant with the state law.
- Carefully choose the state you would love to form the LLC
- Select a name for the LLC
- Carefully select a registered agent
- Prepare the LLC operating agreement
- File the LLC with the specific state
- Obtain an employer identification number
- Open a verified business account
- If necessary, register the business in other operational states.
Some Benefits of Forming an LLC
The most popular reason for forming an LLC is because of the flexibility and simplicity it has. Also, most business owners prefer forming LLCs because they are easier to start and run than corporations. Here are some benefits owners enjoy for forming an LLC.
Have Limited Liability
The owners of an LLC are called members. One of the benefits they enjoy is being shielded from personal liabilities. This means that creditors can’t use their assets to pay the business debts than sole proprietorships and corporations. Hence the personal assets of the LLC owner are protected due to the limited liability.
Have Flexible Membership
There’s no limitation in the number of members to join an LLC. This means that the LLC can comprise of trusts, individuals, corporations, and even partnerships. This is unlike the corporations with a maximum limit on the number of members allowed to join the corporation.
Have Heightened Credibility
It can be easier to establish credibility with a new LLC than with a business operating as a partnership or sole proprietorship. This is because an LLC has simplicity and flexibility in starting and running the business.
Have Pass-Through Taxation
Typically, LLCs are not required to pay taxes during the entry levels as a business. Therefore, any business profit or loss is passed directly to the owner and reported on their income tax returns at an individual level. This is unlike the corporations without the flexibility to choose whether to be taxed on a personal level.
Have Limited Compliance Requirements
Unlike the corporations and sole proprietorships, LLCs don’t require most ongoing formalities and state-imposed compliance requirements. Therefore, it makes the starting process simple and more straightforward.
When forming an LLC, ensure to check the regulations and compliances of the state you would want to start the business. Also, carefully analyze the business structure before forming the LLC so that it can be successful.