A Limited Liability Corporation is a type of business structure that provides significant advantages to the small business owner. LLCs are a sort of hybrid between a sole proprietorship and a corporation. Both business structure offer advantages, but neither is structured specifically for the small business person. Then came LLCs. Some advantages of an LLC are as follows:
LLCs are a 'pass through' tax entity. This means you have the option of being taxed only on your share of profit (or loss). According to business law company Nolo.com, the profits and losses of your company are not taxed at the business level, instead they are taxed on the partners' individual tax returns. So you can choose to reinvest profits into the firm without being taxed.
Limited liability companies live up to their name. Business owners are not personally responsible for debts or lawsuits. This is one of the major benefits of a corporation that sole proprietors always envied. Nolo.com says owners are not accountable for legal judgments against the business. So you do not risk losing your house because you lost a lawsuit. The owners are only responsible up to the amount invested in the LLC.
- Quick Set-Up
The paperwork to set up an LLC is relatively small. There are really only two major documents: LLC Articles of Organization and Operating Agreement.
LLC Articles of Agreement is your declaration of business. Nolo.com says this is the only legal step required in most states. (Others require a newspaper ad announcing your attention.) The LLC Articles of Organization must be filed at your state's LLC filing office.
The LLC Operating Agreement is a document drawn to define the owners rights and responsibilities. Nolo says, while this document is not required by law, it is very important the owners create an Operating Agreement in advance. This is so any discrepancies of ownership, financial obligations, and control can be settled with a statement in writing.
Always discuss business law and structure with a certified business advisor or lawyer. Don't follow up on any information in this article without consulting the proper specialist.