When choosing which type of business structure to form, one of the main considerations is finding a structure that maximizes the limits on personal liability. Starting and running a business is difficult enough, so finding ways to protect personal assets and limit the exposure of personal liability is a key aspect of choosing a business structure. One of the most popular structures to accomplish this is an LLC.
Following are four of the basic advantages of setting up an LLC.
Unlike a sole proprietorship or a partnership, an LLC offers a deeper layer of protection of personal liability against business debts. The LLC structure offers protections similar to those found in a corporation, but the LLC is easier to set up and much easier to operate. An LLC is more difficult to set up than a sole proprietorship or a partnership, but it does offer other advantages over the two structures.
Unlike a corporation, an LLC has the same pass-through tax entity status as a sole proprietorship or a partnership. The profits and losses of the company pass through to the owners and are reported on personal tax returns, just like a partnership or a single business owner. This is a much simpler method for tax accounting, unlike a corporation which must pay taxes as an entity.
The main advantage of an LLC is that it blends the advantages of other business structures together without many of the disadvantages. The LLC is less complicated to set up than a corporation, but it offers its members personal protection against creditors should the company not be able to pay its debts. An LLC can be operated much like a sole proprietorship or a partnership while still offering protection against personal liability.
While forming an LLC is more complicated than a partnership or sole proprietorship, it requires fewer steps than forming a corporation. LLCs are formed by submitting articles of organization with the LLC division of the state's government. The main advantage to an LLC is that it can be formed by a single person, unlike a corporation.
LLCs must also form a written operating agreement, which spells out the responsibilities of the owners and their share of interest in the business.
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