After the initial exhilarating decision of forming a company, you may find yourself at an exasperated level trying to decide if you should settle down for a sole-proprietorship, a partnership or a corporation. This article can tell you about one more option you may not have thought about. It is the Limited Liability Company. best LLC service
What is it?
A Limited Liability Company or LLC is a business structure that combines the best of a corporation and partnership entity in terms of limited liability protection of a corporation and the tax pass-through advantage of a partnership company.
The other relevant aspects or information about a LLC are:
It is neither a corporation nor a partnership business.
Although many term it as Limited Liability Corporation, the exact lingo is Limited Liability Company.
Owners are called members and not partners or shareholders.
There is no limit to the maximum number of members and it can include other LLCs, individuals or even corporations.
The strength of a LLC
Since LLCs are sheltered by a corporation’s liability protection, the LLC can exist as a separate body, much like the corporation. LLC members’ personal assets cannot be put at stake unless they provided them as a personal guarantee.
LLC’s can have a flexible profit distribution.
LLCs do not need to be run with a bandwagon of formalities. Where corporations need to conduct meetings, record resolutions or maintain minutes, LLCs are easier to run and it requires no corporate resolutions.
Taxation: The company’s profits, losses, and expenditures are directed to the individuals and not the company. This prevents the phenomenon called “double taxation” where you would otherwise need to pay individual and corporate tax.
Less paperwork: LLCs don’t require you to be buried in a mound of paperwork. The process is simple and easy to follow even when forming a LLC.
Drawbacks of a Limited Liability Company
· Although the operating agreement is not mandatory, a multiple member LLC can fall into trouble if it functions without such an agreement.
· It may be more difficult for a LLC to raise financial capital.
· States like Pennsylvania, New York, Tennessee, Kentucky, California and Alabama impose a capital or franchise tax on Limited Liability Companies. Texas has replaced this tax with a margin tax. The LLCs are asked to pay this tax for the limited liability protection they enjoy.
· Renewal fees can be higher.
· The structure and functioning of a LLC can be considered confusing by many. This is bec