Building Your Business: Forming an LLC

Legally forming your business entity demonstrates commitment to your vision and your business. Filing your entity with the state can also provide many advantages. The following are some of the reasons you may benefit from establishing a Limited Liability Company.

Tax Treatment

Members of LLCs have the ability to decide if they want the LLC to be taxed as its own legal entity, or if individual members will bear the tax burden instead. The traditional corporation is always taxed at the entity level. Corporations may be subject to double taxation, meaning the shareholders of the corporation are taxed and the earnings of the entity itself are also taxed.

Ownership

There are several different types of ownership structures for LLCs to choose from.  LLCs can be managed directly by its members or have a separate group of managers. In some cases, LLCs have some members that have management responsibilities, and other “limited members” that merely have an ownership stake in the LLC.

Less Formalities

Forming a corporation comes with the additional burden of adhering to certain formalities, such as holding an annual shareholder meeting and other recordkeeping tasks.  Going to these lengths may seem unnecessary, especially for smaller enterprises.

Some business owners enjoy the fact that LLCs don’t require such formalities.

Limited Liability

LLCs are a popular asset protection tool for business owners. If your business is sued or runs into financial trouble, the business will be responsible, rather than you individually.  Although this is the main reason to form an LLC, there are many pitfalls that may jeopardize this protection, so it is always best to seek counsel from an experienced business attorney.