Limited Liability Company Benefits

Limited liability companies offer several benefits for owners of small businesses. In addition to being easy to form, LLCs do not require much paperwork in your initial filing. A key feature of LLCs is limited liability; the owners (called “members”) will not — in most cases — be personally responsible for the debts of the business. This means your personal assets are protected when your LLC owes money.

LLCs exist in a unique nexus of sole proprietorships, partnerships, and corporations, and take the best advantages of each. The LLC entity is less formal and provides more flexibility than a corporation yet still provides the same liability protection. Additionally, LLCs gain the same tax simplicity afforded to sole proprietorships and partnerships yet have additional legitimacy as a result of being a registered business entity.

You may elect to have your LLC taxed as a sole proprietorship, partnership, or S-Corporation. This decision usually hinges on the number of members your LLC has. In all cases, LLCs receive the benefit of pass-through taxation. This avoids what is called corporate double taxation in which corporations must pay income tax on its profits and then pay additional taxes on its disbursements to owners. LLCs on the other hand only pay tax once: on the owners’ personal income tax returns.

There is no limit on the number of members you may have in your LLC and there is no limit on who may be a member. Your ownership interest in the LLC is generally freely transferrable — unless limited by the LLC’s operating agreement — and your LLC will exist in perpetuity so long as there is another person willing to take your spot.

Though the limited liability company is a newer type of business, it was created with the needs of small business owners in mind. A competent business attorney can evaluate your company and ensure that an LLC is right for you.