5 Reasons to Start a Limited Liability Corporation

Starting your own business can be an exciting venture, but it also comes with its fair share of risks. If you’re thinking about starting your own business then there are a few reasons that should help push you in the right direction. We’ll take a look at why starting a business as a limited liability company (LLC) is such an advantageous choice for new businesses. It even makes sense if you’re operating as an independent contractor or as a sole proprietor who is looking to shield your personal assets from being used for business purposes. In this article we will explain the benefits of forming an LLC, including tax implications and other considerations.

What is a Limited Liability Company?

The limited liability company (LLC) is a type of business entity that provides a high degree of protection for its owners by shield-ing them from business debts and lawsuits and providing limited tax liability. LLCs are similar to partnerships in that they can be formed by two or more individuals who want to combine their efforts to form a business that can then be operated as a sole proprietorship or corporation. Like a corporation, an LLC can be formed by filing with the appropriate government entity, such as the state secretary of state’s office. However, there are some significant differences between a corporation and an LLC that result in LLC being a more advantageous business entity to form.

Sole Proprietor or Small Business Owner

If you are a sole proprietor or a small business owner then the LLC will provide you with protection from the risks and liabilities associated with operating a business. A sole proprietor is a person who operates a small business without the protection of a corporation. A sole proprietor is responsible for all debts and liabilities incurred by the business. As the owner of the business, a sole proprietor has unlimited personal liability for any damages or judgments that arise from the business operations. There are two types of small business owners: single owners and married owners. Single owners are sole proprietors who operate their business alone. If a single proprietor has a family, he or she must file taxes as a head of household. Married business owners are those who operate a business together with their spouse or partner.

LLC as a Registered Business Entity

While the LLC does not provide the same level of protection as a corporation, it provides many advantages over running a business as a sole proprietor. The LLC is a registered business entity that can be formed by filing appropriate paperwork with the state government. Unlike a corporation, LLCs do not require annual filing with the Securities and Exchange Commission (SEC)—the LLC is the filing. The LLC can be formed by two or more individuals who want to create a business entity that will shield their personal assets from being used by the business. The owners of the LLC will each receive a share of the profits and losses of the business through dividends.

Advantages of LLCs for Tax purposes

The most important advantage of forming an LLC is that the entity is not taxed as a separate entity. The income and gains of the LLC are passed through to the owners of the LLC, who can then allocate the income to themselves as a percentage of their income. This means that an LLC does not have to pay taxes like a corporation or sole proprietorship would. The income of an LLC is reported on personal income tax forms and is not subject to corporate tax rates.

Disadvantages of LLCs for Tax purposes

There are some disadvantages of forming an LLC for tax purposes. Since the income of an LLC is usually passed through to the owners as a percentage of their own income, this can result in a reduction in tax revenue for the government. Another disadvantage of an LLC is that the LLC itself is subject to taxes. This means that the owners of the LLC have to pay tax on their share of the income, so it is not an advantage to shield the owners from taxes.

Conclusion

LLCs are a great choice for those looking to start their own business. Unlike corporations, they do not have to file annual SEC reports and they do not pay corporate taxes. They also provide some protection from liability. However, you’ll want to keep in mind that the LLC is not as protective for your taxes as a corporation is. The LLC will report its profits and losses on your personal tax return and you’ll pay taxes on those profits.