A relatively new form of business structure is gaining popularity among small business owners: the limited liability company or LLC.
Not long ago, a business owner had only two choices, remain a sole proprietor or incorporate. But the relatively new LLC classification may be the perfect solution to someone operating a small business but who does not require the more formal structure of a corporation. LLCs are available in all fifty states, something that was not true just ten years ago.
Because LLCs are seen as easier to form and more flexible than a corporation, many small businesses are opting for this way of structuring their small business. It’s a good option for someone who is starting a business that is unlikely to ever go public because it offers many of the same legal protections of a corporation but without some of the complicated tax laws associated with them. But like anything you do in business, there are advantages and disadvantages that you must be aware of before making this move.
Some of the advantages are:
-If your business holds property, an LLC may be the better choice at tax time. In a corporation, any profits from increases in real estate value are double taxed. For example, the corporation as well as the officers and shareholders of the corporation face a tax if the property is sold. In an LLC, the tax is paid once by the company owners, and not by the company itself.
-Forming an LLC gives you many of the same legal protections as a corporation. For example, if your company gets sued, the owner’s personal assets are protected. If you have a company or plan to start a business, it’s always a good idea for your legal protection to make your business a separate legal entity
-This business structure was allowed so that small businesses would be able to have the legal protection of a corporation without the restrictions, formalities, and liabilities associated with incorporating.
-Because an LLC is less formal, the company is not required to hold board meetings or record meeting minutes making it easier to operate.
-Every state’s LLC laws vary slightly, so if your business works in several different states, you need to know that state’s regulations for LLCs.
-Corporate laws are endless, making it easier for attorneys to defend a client that is incorporated. LLC laws are far less prevalent, making it more difficult for attorneys.
-In most states, when the owner of an LLC dies, the LLC ends as well. In a corporation, the business entity continues on until it s formally dissolved.
Even though forming an LLC is less complicated and requires less paperwork, it is a good idea to get professional help with this. LLC applications must be submitted to your state’s Secretary of State, and some states require business owners to submit an operating agreement which defines profit sharing, ownership and ownership transfer.
Roberto Neuberger is President and CEO of ActiveFilings.com which has over 8 years experience forming over 39,000 corporations, LLC’S and non-profits.