Spotlight on the Limited Liability Company (LLC)
The Limited Liability Company (LLC) is now a recognized business structure in all 50 states plus the District of Columbia. LLCs are gaining popularity with small business owners because they combine the advantages of a corporation with the tax advantages and management flexibility of a partnership.
The main similarities between an LLC and a corporation are:
* both are legal entities created by a state filing.
* Both help protect your personal assets from your business liabilities.
* Both have few ownership restrictions.
The main differences between LLCs and corporations are: corporations issue stock and are owned via stock. LLCs do not issue stock. Like partnerships, LLCs are simply owned by the members and/or the managers of the company.
* Corporations are required to hold annual meetings and to keep written minutes. LLCs do not have this requirement, resulting in less official paperwork.
* Corporations are taxable entities, and (except for Subchapter S Corporations) they must pay taxes on their profits at the corporate tax rate. LLCs, like sole proprietors, partnerships and S Corporations, are “pass-through” tax entities. This means that the profit or loss generated by the business is reflected on the personal income tax return of the owners, thus avoiding the double taxation of paying first corporate tax on profits and then personal income tax on distributions of profits.
Because of their flexibility and relative simplicity, the LLC is well suited for both start-up businesses and more mature businesses. LLCs have been gaining speed in recent years. In fact, new LLC formations now out-number new corporation formations in several states. LLCs have several “ease of use” advantages:
* LLCs provide greater management flexibility than do corporations. For instance, corporations are required to have a formal structure with directors and corporate officers. LLCs are simply run by the members and/or managers.
* LLCs provide greater flexibility with regard to income distribution than do corporations. When corporations pay dividends, those profits must be distributed evenly on a dollar per share basis. LLCs may distribute income as desired.
* if a small business is interested in “pass-through” taxation, then LLCs have an advantage over S Corporations with regard to ownership flexibility. All shareholders of S Corporations must be citizens or permanent residents of the United States and there may be no more than 100 shareholders in total. LLCs do not have these restrictions, again allowing greater flexibility.
When would an LCC not make sense? Corporations issue stock and LLCs do not. Corporate ownership is most easily transferred using sale of stock. If your business intends to sell shares of stock to investors or if a public stock offering are in your plans, then an LLC may not be right for you.
Be it a corporation or an LLC, it is very important to form a business entity that protects your personal assets and your family. If an LLC is right for you, it can be formed for you in any state with a simple phone call. The good news is-as the needs of your company changes, the existing business structure can be amended or a new business structure can be formed quickly, easily and affordably.
What is the cost to form an LLC ?
Ready to get started today? Form your Limited Liability Company (LLC) with our 10 minute on-line form.
Still have questions about forming an LLC? Please call one of our Incorporation Specialists at (800) 818-0204 to help you with the process.