Monday, July 26, 2010

Advantages of LLC formation

The Limited Liability Company, or LLC, is a relatively new type of business structure that combines the best features of the corporation with those of the sole proprietorship or partnership. Starting an LLC provides its owners many advantages and benefits which they can not enjoy altogether in any other type of business.

Personal liability Protection:

LLC is separate entity from its owner. Since it is viewed as a legally distinct entity, the personal assets of the owner (such as personal residences, and personal bank accounts) are not reachable by business creditors. The LLC owner's liability is generally limited to the amount of money which the person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as a corporation's shareholders.

Tax Advantage:

The popularity of LLC filing is primarily based on the Tax Advantage. LLCs allow for pass-through taxation. This means that earnings of an LLC are taxed only once. The earnings of an LLC are treated like the earnings from a partnership, sole proprietorships and most S corporations. An LLC operates in most ways as a corporation, yet the distributions to its "members" (shareholders) are not subject to taxation at the corporate level. Instead, the distributions are "passed through" the corporate level and are taxed only at the individual level. Therefore, the LLC filing avoids "double taxation".

Ease of Transfer:

Starting LLC also gives you opportunity to sold ownership interests to third parties without disrupting the continued operation of the business. On the other hand, selling interests in a sole proprietorship or general partnership requires much more time and effort. An owner must individually transfer assets, business licenses, bank accounts, permits and other legal documentation.

No Ownership restrictions:

LLC formation also allows you to retain any number of members. By comparison, S-corporations cannot have more than 100 stockholders, and each must be a resident or citizen of the United States. None of these restrictions apply to an LLC.

Easy Generation of Capital:

If you create LLC, you have more options available to raise capital. You can admit new members by selling membership interests. You can even create new classes of membership interests with different voting or profit characteristics.

It offers greater credibility:

As a registered LLC, your business will enjoy legitimacy and greater credibility when dealing with other companies, banks and potential partners.

Flexible Management Structure and Flexible Ownership is Permitted:

Like general partnerships, LLCs are generally free to establish any organizational structure agreed on by the members. Thus, profit interests may be separated from voting interests.

To Read More : Advantages of LLC formation

Source : Business Documents Filing in 50 States

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