Understanding Limited Liability Companies

A limited liability company, commonly referred to as an “LLC”, is known as a fusion legal entity due to the merging of features seen in both a partnership and a corporation. LLCs are typically treated like a non-corporate business organization in regard to tax purposes and owners of an LLC are granted protection against personal liability. LLC are amongst the most popular and common types of business structures because they are far less complex compared to things like “S” Corporations or “C” Corporations. The flexibility inherent in LLCs make them attractive to business owners seeking to tax benefits, personal protection of their assets, and the legitimacy that comes with being a registered LLC.

Generally speaking, becoming a limited liability company has many advantages. While there are a number of considerations to take into account before filing, the following are some of the most prominent advantages:

• Legal protection against business obligations and business debts
• Avoid filing a corporate tax return, LLC owners are able to file business reporting on their individual tax returns and thus circumvent double taxation
• Ability to start an LLC without being a permanent resident or a U.S. citizen
• A favorable look for other potential business partners or lenders

While LLCs have a number of critical benefits associated with them, this type of business structure does not exist without some potential drawbacks. Some of the most glaring disadvantages include:

• LLCs are handled differently in each state and this can create potential issues if relocation is necessary
• Shares of stock cannot be issued and therefore growth potential is narrow
• Potential of having to pay a self-employment tax

Deciding to become an LLC requires a lot of forethought. The right answer really depends upon your company’s long-term and short-term objectives. Regardless of what those goals may be, it is important to discuss your business structure with a professional. Contact our office today to get started on your new business.