To run a successful business, you have to be good at what you do. It’s likely that you know your business inside and out. However, if you don’t have a legal background, you might not be sure which form of business entity is best for your type of business.
A limited liability company, or LLC, is a business entity that has been growing in popularity for years. Only an experienced business law attorney is qualified to advise you on which particular form is best for your business; but, if you are just starting your research, you need to know about some of the advantages an LLC has to offer.
Liability shield, tax savings, ease of use make limited liability companies attractive
Limited liability companies were first introduced in the American legal system in 1977. Since then, LLCs have become the go to business entity for a growing number of businesspeople.
Legally speaking, an LLC is a distinct entity from its members. An LLC can enter into contracts, accumulate assets and incur debts of its own accord.
The personal assets of an LLC’s members – its owners – are not reachable by the LLC’s creditors. For example, imagine that a business operating as an LLC is sued in court for a substantial sum and loses; the LLC members would be responsible for paying the judgment only up to their ownership interest in the company. This is a significant advantage over a partnership or sole proprietorship, where personal assets (homes, savings, etc.) are at risk against business creditors.
Profits from an LLC may be distributed to members in any way the members see fit. Most LLCs elect to pass each member’s share of the company’s profits and losses to the member’s personal income tax return. This can mean huge tax savings over businesses operating as a corporation, because corporate profits distributed to shareholders are subject to double taxation; corporations are taxed on profits at the business level, then when those profits are distributed to shareholders, each shareholder is subject to tax on the dividend income. By funneling profits directly to members, an LLC puts more profit in owners’ pockets.
LLCs are also very flexible, and generally an easy form of business to administer. An LLC can have an unlimited number of members, or just one. LLCs can take on whatever management structure members deem necessary to effectively conduct business. And, unlike many other types of business entities, LLCs are not required to keep detailed records about how company decisions were made or to file an annual report.
Speak with an attorney to learn more
Limited liability companies have many great attributes that could be a perfect fit for your business. However, you should talk to an attorney with experience in business law before making any decisions about your preferred business form. Different entities are right for different situations, and you need to protect your investment in your business by getting it right the first time. Talk to an attorney today to find out whether forming an LLC is the right move for your business.