With so many options when looking at starting a new business, you might be thinking: Why choose to form an LLC instead of another business type? To follow is an overview of the benefits of starting an LLC instead of another business type.

An LLC refers to a Limited Liability Company. It is widely considered to be one of the least complicated methods of forming a business in a way that still protects your personal assets in case the business falls into financial or legal trouble. An LLC can be owned by an individual or by many people, and these individuals are known as LLC members. Should an LLC have only one owner, then the business is known as a single-member LLC whereas an LLC owned by more than one person is referred to as a multi-member LLC. 

The popularity of LLCs derive from the fact that they safeguard you as the owner against lawsuits. As such, even if the business fails or is sued, the personal assets of the owner cannot be substituted in order to pay-off business debts. There is lessened need for paperwork in comparison to corporations and other legal entity types, and using the LLC business formation also stops the company from being taxed twice. As an LLC your business gives the impression of being more credible to both customers and creditors. This has the result that it is easier to take out loans and gain the trust of clients which can have a positive financial effect on the business. This business type is especially good for businesses which have a large client base, have the possibility of prompt and continuous profit and as such a bigger risk of liability and loss, and in whose best interest special taxation options would be. 

Six Advantages of LLCs:

The allure of the limited liability company, especially for small businesses, is that there is the right combination of personal asset protection and accessibility. In comparison to other business structures, such as sole proprietorships and general partnerships, LLCs offer security of your personal assets, even if the business faces legal or financial difficulties. Furthermore, LLCs are comparatively simple to establish and sustain. Unlike corporations, they are also not subject to double taxation.

There are many benefits to an LLC, as outlined below:

  1.   Personal Asset Protection.

As mentioned above, the owners of an LLC do not have personal liability risks for the debts or legal troubles of the business. This is, of course, only in the event that no fraud or criminal conduct has taken place. 

  1.   Pass through taxation.

An LLC’s profits are only taxed once because the profits of the business still go directly to the owners. The owners then show what they received out of the profits on their personal tax returns. This is in contrast to C corporations which are subject to double taxation. This occurs as the profits are taxed before they are shared among the owners and taxed again when the owners file their personal tax returns and mention their portion of the profits. 

  1.   Simplicity.

LLCs are not only simple to construct, but also easy to maintain with little need for excess paperwork. LLCs are not obligated to appoint formal officer positions, conduct meetings every year, nor record the minutes and resolutions of the company. 

  1.   Flexibility.

There aren’t many limitations on how you choose to form the company’s ownership and management. It can have one owner or many. Should the LLC be multi-membered, it can be managed by said members (member-managed) or a manager can be appointed by the members (manager-managed). Furthermore, the LLC can choose whether to be taxed as a C-Corp or a S-Corp depending on which is most advantageous. 

  1.   Increased credibility.

The LLC is widely considered to be a more official business structure, especially in contrast to a sole proprietorship or a partnership. The moment clients and creditors see LLC in the business name, an increased level of trust is established in your role as a credible business. 

  1.   Access business loans. 

The moment that the business has been formed, the LLC has the opportunity to establish a credit history. This has the consequence of access to loans and lines of credit. Especially if you are a women-owned business, there are specific financing options. 

More information:

This information has been garnered from TRUiC who has useful information on what LLCs are, the numerous benefits that they provide, and how to start one. Click here for more information from them.