Limited Liability Company (LLC) - Is it right for your business?

Limited Liability Companies (LLCs) are becoming increasingly popular with small business owners because they offer the advantages of a corporation as well as the tax benefits and flexibility of a partnership.
LLCs are similar to Corporations as both are legal entities created by a state filing, both help by protecting personal assets from your business liabilities, and both have few ownership restrictions.

Some of the advantages of forming an LLC include:

Personal Liability for your business is greatly reduced. Forming an LLC will separate your personal life from your business dealings. Sole proprietors and partners risk personal liability for the debt of their business and any lawsuits filed against their company could result in losing their homes, automobiles, boats, savings or other personal assets. Typically only the LLC is responsible for the company’s debts thus protecting the members from individual liability. However, there are some exceptions where individual members may be held liable. Check with your legal and/or tax experts for additional information.

Great tax benefits. Unlike Corporations (except for Subchapter S corporations) which must pay taxes on their profits at the corporate tax rate, LLCs are “pass- through” tax entities. The profit or loss of the business is reported on the personal tax return of the owners, thus avoiding double taxation experienced by Corporations.

Less formal and more flexible. LLCs provide greater management flexibility than do Corporations. For instance, Corporations are required to have a formal structure with directors and corporate officers. LLCs are simply run by the members and/or managers. Forming an LLC. In order to create an LLC, articles of organization first need to be filed with the Secretary of State. Next, the LLC members need to enter into an operating agreement, which sets forth the rights of the members and the rules for running the company. An LLC may also need to apply for a tax identification number with the IRS. There are many companies that can prepare and file this paperwork for you.

You should discuss the option of forming an LLC with your legal and/or tax professional to make sure it is the right choice for your specific circumstances and business.