The LLC Advantage

Limited Liability Company (LLC) is getting the attention of many small businesses that want to incorporate. The LLC is one of a few options available for individuals wishing to incorporate their business and is gaining ground as one of the most popular form of incorporating. So why are people flocking to the LLC as opposed to options like C Corp?

Liability Advantages

In a LLC, you find the words "limited liability". These words appeal to business owners because one's personal assets are not at risk. In other words, debts against the business will not affect the owner for the debt collection. The owner's home, financial and physical assets would not be subject to the company's liability. In fact, some companies separate their assets among different LLCs to protect their assets. For example, a company can hold equipment in one LLC and financial assets in the other. By doing so, all the assets won't be exposed to the same liability.

Another intriguing advantage is that the transfer of the debt to the limited liability company will not affect the owner, individually, for the debt itself.

Fewer restrictions

There are fewer restrictions for a LLC. For example, a LLC is not limited to a set amount of shareholders such as an S Corp. S Corps only allow up to 100 shareholders.

There's even more flexibility of partnerships since members can create their own contract and allow the ease of management. Moreover, LLCs have fewer restrictions than an S Corp because it can issue varying classes of ownership; S Corps can only issue one stock type.

Tax Advantages

Another advantage of the LLC is that the profits ignore the taxes associated with the business or corporation. Rather, the tax is passed to the members of the LLC directly. Reporting the taxes is as simple as reporting it on your individual tax return. Additionally, you will be able to apply costs or losses associated with the startup cost of the LLC to the individual tax return.

Conversely, a C Corp would be taxed by the government. The remaining profits are then provided to the partners or owner and are subject to tax. As one can see, the profits are taxed twice - which would lower the gains considerably.

Simplicity

Unlike C Corps or S Corps, it's not necessary that a LLC hold annual meetings. Moreover, this entity is not required to even draft meeting minutes.

Another advantage is that a member of a LLC can contribute appreciated property and it would tax free, regardless of how much interest the member has. Whereas in an S Corporation, the contribution of appreciated property would be available if the member has 80% or more controlling interest.

For Non-US citizens or permanent US residents, ownership in an S Corporation would not be an option. However, LLCs do not share in the same restrictions for these individuals.

Today, there are plenty of websites that allows individuals to create a LLC through online vendors. The benefit of this easy access is that it's quick and could save you a lot of money. Typically, lawyers could charge you thousands of dollars to create a LLC. But with online sites, LLCs are easier than ever.

LLCs are not for everyone seeking to incorporate. However, they do provide business owners with tremendous flexibility, simplicity and tax advantages. It's no wonder LLCs are taking the incorporation world by storm.

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