LLC stands for “Limited Liability Company.” With a Limited Liability Company, you are in control of your own business. You can define your company, which provides you with a lot of flexibility. For example, you have the benefit of keeping your company’s receipts. You also benefit from keeping other business documents such as invoices and bank statements.
Your LLC can also be a tax-advantaged entity. You can deduct your business expenses from your taxes. This allows you to keep more profit returns instead of paying taxes. You can then sell your companies without tax consequences when done with your business.
The following article will discuss the reasons for creating an LLC.
1. Limited Liability
A limited liability company is one of the most popular entities used by small businesses. The most important benefit of creating an LLC is limiting your financial responsibility. Assets within the company are separated from your investments. You only have to pay for what happens within the LLC, not outside of it.
The IRS does not allow you to limit your liability in this way when you’re operating a sole proprietorship. It also limits you if you are running a general partnership.
An LLC can adapt to changes within the business. You can change how the owners are designated. For instance, how many owners there are, or even how you divide the profits. If you decide to sell your business in the future, you have more options when running an LLC. You can sell your interests partially or as total interest. Your LLC also has more flexibility for debt and equity financing options.
3. Transparent Business Operation
An LLC is much more transparent and open than a corporation. You will require to file your personal tax partnership information with the IRS. The IRS also requires you to file your company’s annual report with them for taxation purposes. This provides transparency into your business operation. It also allows the IRS to audit your company for errors easily.
4. Ease of Starting an LLC
Finding free forms and resources to start a corporation is difficult. However, that’s not the case when you want to start an LLC. You can easily find free forms and templates for creating an LLC from many sources. For instance, you can get forms from your state government. Also, some online legal technology companies can provide you with the resources you need to start an LLC. A good example is LegalZone. The website offers you the proper forms and resources to start a LegalZone LLC.
5. No Restricted Ownership of an LLC
Many business owners hire their spouses and children to work in their businesses. An LLC allows you to have multiple owners. It could be your spouse and yourself. Or you could potentially have a silent partner that doesn’t involve themselves in the daily operations. It is helpful if you want your business to grow. You can also choose to let your employees invest in the industry. Investing in an LLC allows you to enjoy the benefits of the business tax advantages.
6. Value Creation
When you’re running your own business, it’s critical to understand how the company works. And how you could improve it. For example, improving customer service or finding new and innovative ways to promote your products. Running a traditional corporation usually prohibits taking this kind of entrepreneurial action. However, an LLC affords you the space to create and explore new ways of creating value for your company.
6. You Can Plan your Estate
With an LLC, you can leave your family a more significant amount of money than if you’re not running a business. It is because LLCs are tax-advantaged businesses. The remaining members can carry on the company if you pass away with an LLC. That way, the company can continue to operate. And it protects your heirs from paying unnecessary taxes.
The Bottom Line
An LLC offers many advantages, especially for small business owners. It’s a more flexible entity with many financial and tax benefits. While some business owners run their company through a corporation, this is always the best choice. This is because of the restrictions that come with corporate ownership. If you’re not planning on raising money from investors, an LLC is likely the best choice for you.