Why Form an LLC?
Why Form an LLC? This is one of the most frequently asked questions about starting your own company. First of all, a limited liability company, or LLC, is a company that has features of both sole proprietorship and a corporation. From the name itself, the company has limited liabilities. So why form an LLC? An LLC has several advantages from other kinds of companies. LLCs are famous for the taxation features. Due to the fact that they are a “pass-through” entity, an LLC can pass through its members both profits and losses. They, in turn, will record this in their personal tax returns. This cancels out the need for the limited liability company to pay for corporate taxes such as that of a partnership. On the liabilities, the LLC gives protection from its members from personal individual liability which is a resultant from debts or actions made by the LLC. Also, when an LLC files for bankruptcy, the member need not worry about his personal belongings being taken away due to the debts of the LLC. Aside from these, reducing of audit risk, establishment of credibility with the customers and deduction of particular expenses are some of the other benefits that give help businessmen decide on their answer for the question “Why Form an LLC?”
Now that you know the reasons why businessmen consider forming an LLC, the next question that usually comes to mind is “Why form an LLC instead of a corporation?” One reason why one should form an LLC is that it is more ideal for small businesses because of the flexibility and simplicity that it offers. It is relatively true, particularly if your businesses are related to holding properties like real estate businesses and are likely to rise in values. This is because a regular corporation, or commonly called C-corporations, and the shareholders are subjected to paying double tax whenever there is an increase in value when property is sold or the corporation is liquidated. On the other hand, with a limited liability company (LLC), you may evade getting a double taxation. The reason behind this is because the taxes and liabilities of the business are passed through the LLC owners, which are called members. In addition to this, the LLC itself is not obliged to pay tax for its income. Plus, LLCs provide asset protection. The first-time business owners were once unincorporated proprietorships. When they start realizing that they could lose their assets, this is the time that they will consider other kinds of ownerships, most particularly the limited liability company. This is because with a limited liability company, personal creditors are not allowed to get in your shoes and take over your LLC and your creditor is prohibited by law and with undesirable tax consequences. With an LLC type of ownership, the members are not held responsible. These are enough grounds on why you should form an LLC.
So if you are looking to start your own business, you should be wise and meticulous in choosing what kind of ownership you want to establish. A limited liability company offers several benefits, which is why you should start asking yourself “Why form an LLC?” A limited liability company is definitely one to consider.
