As a business owner, you need more than just the capital and personnel to run it. Choosing the right business structure is just as important because it can go a long way in protecting your assets and saving you from loads of taxes. One of the most popular business structures is the Limited Liability Company (LLC). Keep reading as we assess in-depth what an LLC is and why you should register your company.
What is a Limited Liability Company (LLC)?
In simplest terms, an LLC is an artificial entity created by the law to assume the rights and responsibilities of the owners. When you form an LLC, you are deemed separate from your company. This protects you and other company members from any financial loss, legal action, or debt liabilities the business faces. For example, if you run an LLC, your personal assets will not be affected if the company runs into debt. The creditors can only ask the courts to take action against the company’s assets, not yours. This is the foremost advantage of an LLC, alongside efficient taxation and flexibility.
Advantages of Forming an LLC
1. Ease of Doing Business
Aside from the protection it offers the owner, LLCs are easier to run than some business structures like corporations. Once you register the LLC with a very affordable fee and easy process, you can focus on your business without worrying about any administrative hassle. Since an individual can form an LLC, it retains the simplicity of a sole proprietorship while having the legitimacy of an independent legal entity. There are also fewer regulations and paperwork to deal with. The absence of a board of directors also saves you much time from meetings and bureaucratic red tape.
2. Cost Efficiency
From creation to maintenance and running costs, LLCs are cost-effective. Aside from attorney fees, which are unnecessary as you can apply by yourself, the filing fee for an LLC is below $500, depending on the state your business is domiciled. In addition, since there is less regulatory paperwork to file, you will spend less on filing fees.
3. Reliability
A major problem sole proprietors face is the lack of credibility, especially when trying to get new clients. Buyers of goods and services can be skeptical of unincorporated one-person businesses. However, LLCs bolster the credibility of the company. In fact, certain brands and big companies will not work with unincorporated companies. If you want to scale up your business and join the big leagues, it might be high time you formed an LLC.
4. Flexible Tax Options
This is a major attractive feature of an LLC. Despite being a separate legal entity, the tax system for LLCs is ‘pass-through-taxation.’ This implies that the company’s profits and expenses are not administered under federal company income tax. Instead, they pass through to the owner’s tax return, who pays at their tax rate. The implication is that there is no double taxation as the company’s tax obligation is transferred to the members of the company.
If you read to this point, you must be all caught up on what an LLC is and its advantages. So if you are about to start a company or already have one, you can register it as an LLC. Forming an LLC is reasonably easy, especially with the aid of an attorney. The major cost is the filing fee which can be up to $500 or as low as $40, depending on the state.