The author is a freelance journalist and Google News PR specialist. He can be reached at contact@sitetrail.com. -- Ed.
What Is An LLC? Is It The Most Optimal Business Structure?
A Limited Liability Company (known as an LLC), is indubitably one of the most desirable and popular business entity structures for starting entrepreneurs within the U.S.
Whilst there are several to choose from, including Sole Proprietorships, Corporations, and General Partnerships, an LLC structure seems to incorporate a variety of the benefits that can be enjoyed in a Corporation whilst maintaining a small degree of legal federal requirements that closely resemble those of a sole proprietorship.
Consequently, it is said to serve as a ‘’best of both worlds’’ option for inspiring business owners.
Below we will discuss the ample benefits that are associated with registering your business as an LLC.
Limited Personal Liability
Indubitably, one of the most significant advantages to having an LLC business is the fact that you will be privy to ‘’limited’’ personal liability under the law.
This means that, as you and your company will be categorized as separate financial entities, if your company accrues significant debt in the future (or is unable to pay any loans), your personal assets (such as your house) will be off the table to any banks or other types of financiers.
This concept is commonly referred to as the ‘’corporate veil’’, and can be a massive advantage for starting entrepreneurs that are adamant to control the financial risks that they’ll undertake as much as possible.
In pragmatic terms, limited liability means that you will not be liable for any value that exceeds the value of the shares you hold; if your business becomes insolvent in the future as a result of being unable to repay its debt, this means that you will know from beforehand exactly how much capital you are liable for- excluding all of your personal assets.
Corporations also provide limited liability under the law, but (as briefly touched on above), forming a Corporation involves significantly more rigmarole, time, and expenses than an LLC, and so is generally better suited for business owners of very large, international organizations (rather than small businesses and startups).
Today’s chaotic e-commerce market has also given rise to a plethora of LLC formation services; these are handled by specialized companies which provide services to form an LLC company adequately and fast, and consequently have meant that entrepreneurs can initiate and register their business faster than ever before.
Increased Prestige
Your brand image and industry-status will improve significantly if you register your business as a LLC. This is because LLCs undoubtedly have a certain element of sustainability and consistently, given their indefinite lifespan, which can separate you from other field competitors.
Given that incorporated businesses are heavily monitored under the U.S judicial and federal system, such improvements in your brand’s perceptive image are both expected and warranted.
LLC companies generally have more complicated filing and accounting requirements that they must follow (albeit not as complicated as those of Corporations), and they must satisfy a plethora of statutory prerequisites in order to maintain their status under the law.
Tax Benefits
Unlike Corporations (which share a couple of structural and monetary benefits with LLCs), Limited Liability Companies do not suffer from double taxation.
In a Corporation structure, the company pays a flat corporate tax rate at the end of each fiscal year (21%), and then (if it wants) pays dividends to its shareholders. Unlike salaries and bonuses, such dividends are not tax-deductible, meaning that they are taxed again on a personal level when shareholders finalize their individual tax returns.
With LLCs, all profit generated by a Corporation is ‘’funneled’’ through directly to the owners of the company; this means that it will only be taxed once (when each member pays their annual income tax).
Final Thoughts
Overall, an LLC business entity structure seems to be quite fruitful in comparison to its alternatives; whilst the process of forming an LLC traditionally involved significant costs and procedural hassle, the proliferation of LLC formation services has meant that the opportunity cost of starting a Limited Liability Company has been reduced greatly.
Having said that, starting entrepreneurs should always carry out their own individual research before making a final decision, as the most optimal business structure for each individual will be highly dependent on their industry and specificities.