If you are contemplating starting a business, you’ve probably heard these abbreviations: LLC, LLP, LP, S Corp and C Corp. In the past, partnerships and corporations were the only formation options available for new business owners. Now, more business formation options are available, and many prospective entrepreneurs are forming limited liability companies (LLCs) and limited partnerships (LPs).
When looking at different forms of business, many business owners choose to form a limited liability company (LLC). Creating an LLC is a good way to “wall off” your personal assets from your company’s liabilities, offering protection for your personal assets in the event of a judgment against your business. For this reason, forming an LLC is a better fit for many owners than a sole proprietorship or a general partnership.
A limited liability company (LLC) also has certain tax advantages. The business itself is not responsible for taxes on its profits. Instead, the LLC’s owners, known as “members,” report their share of business profit and loss on their personal tax returns, similar to tax reporting for a general partnership. This is known as “pass-through” taxation.
The LLC Advantage
In short, there are many benefits of a limited liability company, including:
- Pass-through taxes. There’s no need to file a corporate tax return. Owners report their share of profit and loss on their individual tax returns.
- No residency requirement. Owners need not be U.S. citizens or permanent residents.
- Legal protection. Owners have limited liability for business debts and obligations.
- Enhanced credibility. Partners, suppliers and lenders may look more favorably on your business when you’ve formed an LLC.
Creating a solid business plan is key to discerning which type of business you will need to form. Knowing your goals and business objectives will help you to determine if a Limited liability company is right for you. Be prepared and choose the proper business platform to allow growth and expansion.