A Limited Liability Corporation (or LLC) is a type of corporation that combines the benefits of a corporation as well as a partnership. Owners of an LLC are subject to the tax benefits of a partnership, while still enjoying the status and limited liability of a corporation.
Start-up entrepreneurs and owners of home-based businesses have a new option in deciding how to legally and structurally organize their companies: the Limited Liability Corporation (LLC). LLC businesses offer many of the advantages of both corporations and partnerships, with only a few of the drawbacks they incur. The LLC title can be attached to any on of the three previously established forms: sole proprietorship, general partnership, and corporation.
Some feel that LLC companies provide owners, directors and shareholders with the maximum amount of flexibility afforded to a business. This can include tax breaks, shareholder benefits, insurance discounts and other benefits that can help a new or expanding business operate more smoothly.
There are obvious problems and drawbacks to the other types of businesses run in the United States. An S-Corporation provides significant tax advantages, but is limiting in several areas including stock ownership and investment. A partnership, on the other hand, provides increased ownership and investment flexibility than the S-Corporation, but it does not have the protection of individual limited liability that is found in an S- or C-Corporation.
Over the last decade, LLC’s have become a viable and attractive option for entrepreneurs all over the United States. Essentially, the LLC is a hybrid entity that not only provides tax breaks and suitability options, but also protects the owners – or “members”, as they are called – from liability issues concerning the corporation.
The LLC option also provides pass-through tax advantages comparable to the S- Corporation, but without any restrictions on the owners or shareholders of the entity itself. It is also not subject to limitations on the amount of stock it can hold in other corporations. This is a powerful benefit for the start-up entrepreneur who is developing a new concept or idea for introduction into the marketplace.
An LLC also provides benefits to its directors, who might be concerned about their liability in the company. With an LLC, the owners, directors and shareholders are all protected by liability protection, which is not true of a conventional partnership. The earnings of an LLC company are not subject to corporate taxes; rather, the profits are distributed among the owners – or “members” – in direct proportion to their owner ratio.
If you are looking for an option that grinds out some of your fears, an LLC might be something worth looking into. If you are an entrepreneur or are thinking about a possible start-up business, you can minimize your risk by forming an LLC, while still enjoying the status and other benefits that come with incorporating your business.