June 17, 2007
Explanation of LLC as a Business Structure
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There are growing numbers of businesses across the United States that are forming LLC or limited liability company instead of the conventional sole proprietorship, partnership, or corporation business structure. Many are saying that in LLC,... |
There are growing numbers of businesses across the United States that are forming LLC or limited liability company instead of the conventional sole proprietorship, partnership, or corporation business structure. Many are saying that in LLC, you can gain enough profit subsequently risking your personal possessions and your tax liability is minimal compared to the conventional business structure.
Maybe you are wondering how LLC expedite is popularity to different investors. Does it really have something to offer in making your business organization easy to manage and at the same time not worrying about losses and instead enjoying the profits? Better read the rest of this article and have a better understanding about limited liability company.
Limited Liability- An Overview
To understand more about LLC, let us have an overview about limited liability. It is a liability that is limited within the investors and/or his partner’s investment. In case their business acquires debt, the investors/s is not personally held liable for the business’ obligation. If you are a shareholder of a corporation, for instance, you can not lose more money than the value of your shares in case your corporation runs into debt.
Limited Liability Company- Explained
The above-mentioned discussion is the basic framework of a limited liability company. In LLC, you will be investing your own money as part of the investment. However, when the time comes that the company runs into debt, you, as one of the investors, will certainly not be held liable for paying the company’s debt. You can only lose what you have only invested in the business, nothing more.
The first LLC act was adopted in Wyoming in 1978. Basically, it includes the basic framework of the LLC where it gives an LLC owner with limited personal liability which is deemed similar with the framework of corporation and limited liability partnership and in contrast to the debts and obligations which can be incurred in sole proprietorship or partnership.
Reasons of Forming an LLC
As mentioned earlier, there are growing numbers of businesses across the country that are forming an LLC instead of the traditional partnership or corporation structure. It is due to several reasons.
First, many investors are avoiding so-called double taxation. In a traditional corporation, its income, the profits which are divided to the corporation’s shareholders, and the dividends are all taxable. In LLC, the income of the LLC itself is not taxable. Instead, the owners of the LLC are taxed based on the share of profits of each owner. This single level of taxation in the LLC is relatively helpful in keeping significant savings over the corporate form.
Another reason is that businesses formed as an LLC can actually make take advantage of the tax classification flexibility allowed to LLC. For instance, if your business is quite loosing relatively huge amount of capital, you may opt declare your business as a sole proprietorship or general partnership in order to pass through those said losses to the owners. In case your business is more established, you might opt to declare it as an S corporation (the profits earned are taxable at the individual shareholder level and not in the corporate level) in order to save on self-employment taxes. If your business is large enough and you have co-owners, you might now operate as a C corporation.
LLC offers the flexibility you want. It can be declared either of any of the existing business structures when it comes to tax classification aside from its dual features.
Recommended Reading
- What you Should Know about California LLC
- Maryland Limited Liability Company Act- A Flexible Statute
- What you Should Know in Forming a Nevada LLC
- How to Form an LLC: 3 Basic Steps
- Limited Liability Trading Company Formations Goes Online?The Automated UK Trading System
