Should You Choose to be a Limited Liability Company?

*Please note: the article below is for information purposes ONLY. We recommend that you always consult an attorney in your state who can give you the personal advice you need regarding the setup of your company.*

If you’re planning to start a company, even by yourself, you have some things to consider.  There are several different ways to classify a business legally, all offering different rights and responsibilities.  One of the most popular business registration structures today is the LLC, or Limited Liability Company.

An LLC is one of the available classifications for businesses.  It is particularly popular with a number of small to medium sized businesses because it offers liability protection for the individual without the restrictions, double taxation, and paperwork of the Corporation class organizations.

The foremost benefit of the Limited Liability Company is the separation of the owner’s business liability from personal liability, hence the name.  In most cases, if the company becomes liable for some debt related to the business, the individual members are only liable for their investments into the company.  Personal assets of the owners are not subject to business liabilities in an LLC.

As an LLC, owners have the benefit of “pass-through” taxation, meaning they pay taxes only once, whereas other business structures require that owners pay both corporate and personal taxes on any income earned.  Owners, called members in LLC terminology, normally pay taxes at a personal level rather than LLC level.  If the LLC chooses, they can also be taxed as one of the other business entities.  It’s commonly believed that the best combination for most small businesses is the LLC taxed as an S-Corporation.

Registering as an LLC provides a simpler registration process and operation compared to one of the Corporation structures.  The requirements for filing as an LLC are much simpler, and there is much greater freedom to organize the company as one wishes.  There is no need to have an annual board meeting or appoint a certain number or type of officers.  This is a great part of the appeal in LLCs.  They offer many of the most important benefits of a corporation to a business without the restrictions and requirements inherent in them.

There are, of course, many cases in which an LLC is not the best choice.  In a corporation, it is much easier to acquire funding, as stock can be sold.  Corporations have been around longer and have an established reputation, so investors may be more comfortable with those structures than with the LLC.  The ability to buy and sell stock in a corporation makes ownership transfer easy compared to the other business structures.  The LLC is a great option for many companies, but it is important for any company to choose the best fit for their needs.