The benefits of an LLC are many and wide-ranging, with LLC advantages that include taxes, shielding members of the board from individual liability for lawsuits, and benefits for business that have one or multiple owners. An LLC, to start, is a limited liability company. This limited liability company shields individual board members from paying out-of-pocket for debts and liabilities of the corporation. Being at risk of crippling bankruptcy due to a lawsuit isn’t conducive to making good, creative business decisions. An LLC gives businesses freedom to take risks. Here are the main LLC benefits, all of which will greatly aid your business in a variety of ways. There are more than just these, but these are the ones that you will feel the greatest impact from.
Tax Benefits of LLC
An LLC benefits can be seen both at the individual owner and multiple owner level of taxation. If you have an LLC, you can choose which entity you want to be taxed as. This taxation choice is one of the benefits of an LLC that cannot be experienced elsewhere. If you’re a single owner, you can fill out a single-person LLC form. This form lets you be taxed as a sole proprietorship. You still get the protection against liability, but you also get the tax benefits that come with a sole proprietorship: pass-through of losses, which offsets the nonbusiness income of the owner, and the lower taxes due to the owner’s probable lower tax bracket.
If your LLC has multiple owners, it can elect to file as an S corporation. (It can also file as a C corporation, but for tax benefits, the benefits of an LLC really shine when it comes to S corporations). If you want to take some of the profits out of the LLC, you can file as an S corporation to avoid the double tax. The benefits of an LLC include the avoidance of a double tax. A double tax is where the company is taxed at the business level and at the individual level. When you file as an S corporation, you get to take advantage of pass-through taxation, which means that there is no business-level taxation. The taxation comes only at the individual level, and the profits/losses of the LLC are “passed through” to the owners’ tax returns. This means that your LLC will carry a lighter tax burden, a major aspect of the benefits of an LLC.
The benefits of an LLC include owner diversity. The LLC’s ownership policy is far less restrictive. With an LLC, you can have over seventy-five business owners. A nonresident alien can also be the LLC’s owner. A corporation/partnership also has the capacity to be an LLC owner. You can also have over 80% ownership segregated into a separate corporate entity. The ability to have disproportionate ownership percentages to the respective owner’s investment in the business, distinguishable from corporations, is another one of the benefits of an LLC. Lastly, you can have pass-through business loss deductions that are in excess of the investment in the business that a respective owner has put in.
Protection of Assets
This is one of the most oft-touted benefits of an LLC. The protection of assets allows board members to be, in almost all situations, not held personally liable for the debts and liabilities of their company. This is known as a “shield,” and piercing the shield (assigning individual liability to members) is very uncommon. Courts are often reluctant to pierce the shield because they know it will have a chilling effect on other companies seeking to organize as LLCs. The benefits of an LLC extend to the personal assets of each of the members. If the company has debts, creditors cannot go after the personal assets of members. In sole proprietorships, personal assets such as your home, car, savings accounts, and more are at stake. If the sole proprietorship (or partnership) is hurting, the assets will feel that loss. Members can also be more involved in the business decision-making without losing their limited liability.
Less Compliance Red Tape
Another one of the benefits of an LLC is that there are less requirements, compliance-wise. There are many state-imposed formalities for S and C corporations that do not affect the LLC. This lack of restrictions, in addition to the lack of restrictions on ownership and management structure, are some major added benefits of an LLC.
These benefits of an LLC all make formation of this type of company worth it. The benefits of LLC structure have a reach across many different categories, from business structure to taxation to ownership diversity. When considering what form your business should take, looking into an LLC is definitely a good idea. While an LLC might be recent invention of state law (the first authorization of an LLC was in the 1970s), it has taken off, and the benefits of an LLC are apparent throughout all fifty states.There are LLC services available that will help you form and register your company, making the creation of this structure far easier than you may think initially. These services will help you hit the ground running as an LLC.