Benefits of Forming An LLC

In recent years, there has been a noticeable spike in the popularity of LLCs or Limited Liability Corporations. One of several legal structures for forming a legal entity, LLCs today are considered by expert business people and attorneys as the choice of many for forming a business or professional practice.

Following below are some of the benefits to forming a business as an LLC. They deserve to be examined carefully before embarking on the structure of the entity.

1- Paperwork is Relatively Simple To File

Paper filing with an LLC is comparatively easy as opposed to a S-Corporation or C-Corporation. The papers to be filed with a state corporate division can be readily done by a secretary, attorney or even by an self-appointed representative such as oneself.

The most difficult part would be the deciding on the corporate structure, by-laws and articles of incorporation but once that has been determined, the rest is simple paper work.

2- Liability Issues

In an LLC, unlike a C or S-Corp, an owner(s) is not held liable for the company’s debts, obligations and any resulting law-suits. An LLC is considered a separate entity in and of itself.

Because an owner is considered a separate entity than the business, the owner’s assets are relatively safe from penalty, law-suits, debt collection or prosecution. In addition, if an owner or managing member passes away, the business can still continue and does not have to end it’s existence.

3- Tax Considerations

One of the most popular features of an LLC is its tax flexibility. The 1997 IRS “Check The Box” regulation, essentially permitted owners(s) or member(s) to determine how the LLC would be taxed for IRS purposes.

Unlike the typical corporation, profits/losses in an LLC are reported as part of the owner’s personal income tax. Thereby, they are paid or deducted by the owner himself instead of by the business.

If a loss is reported by the business, an owner can easily compensate from other sources of income by counting his business a loss on the owner’s personal income taxes.

4- Structure Flexibility and Few Restrictions

Unlike a S-Corporation structure which contains so much paper filings, general paper work and legal paper maintenance, an LLC is not so restricted.

This leaves the structure of the corporate entity free to be whatever the owner(s) determine it to be. One of the very bet benefits is allowing members flexibility in deciding how the LLCs will be managed.

In addition, the near limitless restrictions make LLCs easier to establish and have made them favorites with business vendors.

5-Costs

While generally the costs for forming LLCs are less expensive than an S-Corporation or C-Corporation, it is more expensive than formulating the structure of a sole proprietorship or a partnership. Many times, however, partnerships are formed as LLCs entities.

There are ongoing fees, franchise fees and annual reporting costs to the individual states to be considered. Attorney services can up the expense to around $800.

6- Most Appropriate Time To Form LLC

While not necessarily vital, one can begin to file LLC paper work to be submitted to the state at the onset of setting the business up.

State-wise, this depends on individual state regulations and the structure of the legal entity. The conversion to an LLC from another structure can be done relatively simple at a later time. However, prepare to come up with even more expenses to do so.