There are many benefits of an LLC. The limited liability company (LLC) is a relatively new legal entity which was formed specifically to provide a host of benefits not offered by other entities.
Given all the benefits of an LLC that are available to business owners, business people, lawyers and accountants now consider the limited liability company as the presumptive entity of choice for the new business start-up.
The limited liability laws were specifically designed to provide new business owners with a legal entity that has all the advantages of other legal entity choices but without the disadvantages of those same other entities.
This report summarizes the major benefits of the LLC as a business vehicle:
Limited Liability
One of the biggest benefits of an LLC is that all owners of a limited liability company are protected from being personally liable for the debts, obligations and lawsuits of the LLC. This LLC benefit basically states that a member is not liable just because he or she is a member/owner of the LLC. There are important guidelines and principles that all LLC members need to know and follow to ensure that this limited liability protection is not lost.*
Entity Status
Another benefit of an LLC is that the limited liability company is its own separate entity. This means that an LLC is a legal person separate and apart from its owners. This is important from a business continuity perspective. If a member, manager or a key employee dies or leaves the business, the business still continues.
Management Structure Options
A third of the benefits of an LLC is that it is a flexible entity when deciding how the business will be managed. The members of a limited liability company can choose between two simple management structures: (i) member managed or (ii) manager managed. The LLC laws afford this benefit of an LLC by allowing members great flexibility in deciding how they want the limited liability company business to be managed and what rules to impose upon the LLC when it comes to governance and management.
Informal Decision-Making Procedures
The LLC laws intentionally impose very little formalities when it comes to limited liability company decision-making among members and managers. Most of the states do not even require a formal operating agreeement done between the members. This provides great benefits of an LLC because the owners can focus more on operating the business without worrying about a lot of formalities or maintenance. However, some limited liability company maintenance is recommended to preserve the limited liability benefits of an LLC.
Flexibility in Ownership Structure
The LLC laws are based on contractual flexibility. This means that the laws allow the members themselves to decide the ownership structure, right to profits, voting rights and any other expectations of the member relationships amongst each other and the limited liability company itself. Accordingly, the LLC can be used for a wide variety of business structures -from the most simple to the very complex. . . another one of the many benefits of an LLC.
Flexible Tax Choices
The tax choices for an LLC is probably the second most popular of the benefits of an LLC. In 1997, the Internal Revenue Service passed a regulation which cause the limited liability company to become a popular business vehicle for small business. The regulation, known as the Check the Box regulations, basically allows for the members of the limited liability company to choose how the LLC will be taxed for federal income tax purposes.
For the single-member LLC that is owned by an individual, the limited liability company can take advantage of having simple sole proprietorship federal income taxation but without the personal liability of sole proprietorships. For the single member LLC that is owned by an entity, the tax choices afford the business freedom from the complex consolidated return regulations.
For the multi-member LLC, the law allows partnership pass-through taxation without requiring the limited liability company to comply with all the complex rules imposed upon a corporation that wants pass-through taxation. At the same, time both a single member and multi-member LLC can each choose to be taxed as a corporation as well. As you can see, the tax benefits of an LLC provide more choices than tax choices of other legal entities.
Given all the benefits of an LLC that are available to business owners, business people, lawyers and accountants now consider the limited liability company as the presumptive entity of choice for the new business start-up.
The limited liability laws were specifically designed to provide new business owners with a legal entity that has all the advantages of other legal entity choices but without the disadvantages of those same other entities.
This report summarizes the major benefits of the LLC as a business vehicle:
Limited Liability
One of the biggest benefits of an LLC is that all owners of a limited liability company are protected from being personally liable for the debts, obligations and lawsuits of the LLC. This LLC benefit basically states that a member is not liable just because he or she is a member/owner of the LLC. There are important guidelines and principles that all LLC members need to know and follow to ensure that this limited liability protection is not lost.*
Entity Status
Another benefit of an LLC is that the limited liability company is its own separate entity. This means that an LLC is a legal person separate and apart from its owners. This is important from a business continuity perspective. If a member, manager or a key employee dies or leaves the business, the business still continues.
Management Structure Options
A third of the benefits of an LLC is that it is a flexible entity when deciding how the business will be managed. The members of a limited liability company can choose between two simple management structures: (i) member managed or (ii) manager managed. The LLC laws afford this benefit of an LLC by allowing members great flexibility in deciding how they want the limited liability company business to be managed and what rules to impose upon the LLC when it comes to governance and management.
Informal Decision-Making Procedures
The LLC laws intentionally impose very little formalities when it comes to limited liability company decision-making among members and managers. Most of the states do not even require a formal operating agreeement done between the members. This provides great benefits of an LLC because the owners can focus more on operating the business without worrying about a lot of formalities or maintenance. However, some limited liability company maintenance is recommended to preserve the limited liability benefits of an LLC.
Flexibility in Ownership Structure
The LLC laws are based on contractual flexibility. This means that the laws allow the members themselves to decide the ownership structure, right to profits, voting rights and any other expectations of the member relationships amongst each other and the limited liability company itself. Accordingly, the LLC can be used for a wide variety of business structures -from the most simple to the very complex. . . another one of the many benefits of an LLC.
Flexible Tax Choices
The tax choices for an LLC is probably the second most popular of the benefits of an LLC. In 1997, the Internal Revenue Service passed a regulation which cause the limited liability company to become a popular business vehicle for small business. The regulation, known as the Check the Box regulations, basically allows for the members of the limited liability company to choose how the LLC will be taxed for federal income tax purposes.
For the single-member LLC that is owned by an individual, the limited liability company can take advantage of having simple sole proprietorship federal income taxation but without the personal liability of sole proprietorships. For the single member LLC that is owned by an entity, the tax choices afford the business freedom from the complex consolidated return regulations.
For the multi-member LLC, the law allows partnership pass-through taxation without requiring the limited liability company to comply with all the complex rules imposed upon a corporation that wants pass-through taxation. At the same, time both a single member and multi-member LLC can each choose to be taxed as a corporation as well. As you can see, the tax benefits of an LLC provide more choices than tax choices of other legal entities.
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