Benefits of Having an LLC

Benefits of Having an LLC

Th mt mmn and rfrrd t of business fr entrepreneurs and mll buin owners i a Limitd Libilit Cmn (LLC). If ur business urrntl rt a sole rritrhi, changing to an LLC is in ur bt interest. LLC shares mn f th m qualities a rrtin whil njing more flexibility nd requiring less rwrk.

Lets lk at some dvntg nd didvntg f LLC to help u choose whether LLC is right for u.

  1. LLC Offers Limited Libilit Protection

As th nm uggt, LLC provide thir mmbr rnl protection frm libilit. What this mn is tht LLC members r not rnll liable for business dbt and judgments inurrd b the LLC. Furthrmr, creditors are limited frm seeking th rnl t f LLC mmbr due to libiliti that r inurrd b the LLC.

This limitd libilit rttin is a HUGE advantage vr a regular rtnrhi, whr ll mmbr are rnll libl fr company debt. Al, n LLC, in it i a rt ntit, n l fr and build rdit rtl frm th partners’ rnl rdit. Thi is nthr benefit to n LLC because it hl limint rnl liability fr business dbt, well as viding tnin among partners regarding creditworthiness.

  1. Simliit: LLC Require Less Paperwork

An LLC i muh imlr to run thn a Crrtin. LLC will need t dl with less annual requirements nd nging frmliti thn C-Crrtin or S-Corporation. Whil a Corporation requires ffir, brd f dirtr, regular dirtr mting nd hrhldr mting, n LLC d nt ruir these frmliti.

Furthermore, thr is n nd t get approval frm a brd before taking buin tin, whih i one f the min bnfit f n LLC. Thi simplicity and f doing buin makes it just that muh ir n business owners t rt an LLC. Also, LLC are free to make n rgniztinl structure tht i grd n b th mmbr. LLCs n b mngd by th members or by mngr, unlik Crrtin whih have a brd f dirtr wh oversee the major buin decisions f th company and ffir who mng th d-t-d ffir.

  1. Tax Bnfit f LLC: P Thrugh Taxation

LLC can lt hw th are txd. Th IRS does nt nidr an LLC to b a rt ntit fr tx ur. This means tht the IRS will not tax th LLC dirtl. Intd, members f the LLC gt to dtrmin hw they want to b txd.

Thr r vrl tin:

Singl Mmbr LLC

Singl Mmbr LLC structure is by dfult lld a “Dirgrdd Entity” by the IRS. A dirgrdd entity i treated th same as a l rritr, so ur LLC’ inm will be trtd lik rnl inm. Prfit r losses frm the business r nt txd dirtl but intd r taxed thrugh the ingl members rnl federal tx rturn.

Prtnrhi in an LLC

Mmbr lt t b trtd like a trditinl “Prtnrhi” for tax ur. For businesses with multil wnr, LLC ffr imilr tx bnfit, plus the added advantages f a rrt frm. If th mmbr of n LLC d nothing, thir LLC will be txd a partnership; however, th can elect for their LLC t b taxed a Corporation which i till th preferred option.

LLC Benefits

LLC Filing as a Crrtin

The members of the rgniztin m l choose t fil as if they wr “Crrtin.” If you choose Crrt taxation, your buin will b taxed at a lwr corporate rt fr th firt $75,000 f income. If th members of n LLC wnt to keep the buin’ profits in th LLC in rdr t filitt th grwth f th buin, th rfrrd tin is a C-Crrtin.

Undr this form, th LLC’ rfit will only be ubjt t th bginning rrt tx rt f 15% whih i rumbl less thn th mmbr’ rnl mrginl income tax rt. And if n f th members wnt t riv compensation, they can be paid W-2 wages for thir business-related wrk efforts. On th other hand, if th mmbr f th LLC wnt t tk all r some f th profits out of th buin, th preferred ltin i n S-Crrtin. Each member n riv his r hr r rt share f th LLC’s ttl bottom lin profit ditributin of profit (taxed t their respective individul mrginl income tax rt, but not ubjt t Self-Employment Tax).

All thr of th tin n have big advantages, depending n hw muh inm u rnll wnt t tk and hw muh you ln t reinvest in ur business. Gnrll, in rdr to enjoy th dvntg f n LLC, mmbr of n LLC will nd n Orting Agreement tht outlines hw th LLC will b trtd fr tx purposes. An Operating Agrmnt is an grmnt mng LLC members tht tblih th rul governing each mmbr finnil and mngril rights nd duties.

An Orting Agreement i a declaration f th trutur th member h chosen fr th company, nd sometimes i ud t rv in court that th LLC structure is rt from tht f th individual wnr. Another n of th bnfit f a Limitd Liability Cmn i tht buin rfit r nt rtl federally taxed in dditin to the member’s tx. All of th rfit thrugh t the members, nd is filed on h individual’s tx return.

Thi i a big dvntg over a c rrtin, whr th rfit r taxed and then ditributin r r-txd on th individuals’ rturn. An LLC may still b hrgd state and ll tx, but in mt states th rfit r nt rtl txd.

  1. LLC Enj Crdibilit

Forming an LLC n help a nw buin tblih credibility with potential utmr, ml, vndr nd rtnr because th see u have made a frml mmitmnt t your buin.

  1. LLCs Cn Have An Type f Members

Unlik corporations and rtnrhi, n LLC has flexibility in hw it operates. An LLC, in its Orting Agrmnt, n decide t distribute rfit in rrtin other than invtmnt rntg. In addition, one f the advantages of n LLC vr n S Corp i tht an LLC dn’t hv rtritin n th type and numbr of rtnr th way n S Crrtin d. In ft, your mmbr n vn b foreign ntinl r other companies, with no limit on the maximum number f mmbr.

In a normal rtnrhi, any mmbr wh wnt t limit his or hr libilit n no longer b invlvd in th d t d mngmnt f th buin. On f th dvntg f a Limitd Libilit Cmn is tht all members r rttd from rnl liability without any rtritin n their bilit t manage nd rtiit in th LLC.

  1. Attractive t Frign Investors

Althugh LLC’s r relatively nw in mn tt of th US, they hv bn in rtin overseas fr vr a century. Thus, whn invtr frm thr rt of the wrld are lking t invest, th r fmilir nd comfortable with th LLC structure.

Thi n l be ddd t th benefits of a limited libilit mn. In dditin, investing in n LLC i less imposing than biggr rrtin, th provide a great place fr frign invtr t ntr th Amrin market.

Bnfit f LLC vs. Sl Prritrhi

Th bnfit f n LLC vru a l rritrhi i minl tht LLC mmbr r nt personally responsible fr company debts. In a l rritrhi nd partnership, th wnr r rnll rnibl fr buin debts. Wht thi mn i that if the t of the l proprietorship r rtnrhi nnt tif th dbt, rditr n g ftr each wnr’ rnl bank unt, house, r, t. t make up th diffrn. By contrast, if an LLC runs ut f funds, the wnr r uull nt liable.

Furthrmr, it will be ir for n LLC to raise mn. An LLC can t nw mmbr by selling mmbrhi interests, nd it n create nw l f mmbrhi intrt with diffrnt vting r profit hrtriti. Plus, invtr will b urd tht th are nt rnll liable fr mn debts. Al, LLC enjoy f ownership trnfr. Ownrhi intrt in n LLC can be ld t thr mmbr withut disturbing th buin.

On the thr hand, the business of a sole proprietorship r partnership nnt b ld whole. Intd, each of its t nd intlltul rrt must b individull transferred. Al, nw bank accounts nd tax idntifitin numbers r l required.

Benefits f LLC fr Rntl Prrt

There are some very gd reasons t frm n LLC fr rntl rrt. Th main rn l t u LLC is t protect their rnl t. An LLC will protect u rnll from bing sued. For xml, if ur tnnt drunkn cousin fll dwn th stairs and gets hurts, u uld b liable. Whn the uin br u, h figur he can u you. If that happens, ud b nmd in th lwuit nd wuld hv to dfnd ur wn personal t if u dont have an LLC.

Hwvr, if ur rental property i undr n LLC, only the LLC assets would b liable. Whil inurn could l protect ur rntl property, th catch is that ur inurn might not vr the ttl t u incur. If tht hn, then ur rnl t m b t rik. Hwvr, this wnt be n issue if your rental rrt i protected undr n LLC. S if ur vr in doubt, mk ur t hv an LLC for ur rental rrt.

LLC Tx Writ Offs

What can u write ff n u tx LLC buin wnr? Hving n LLC is ttrtiv because f the iml ” thrugh” tax trutur it rvid. Thi mn that the buin inm nd ddutin pass n to your wn rnl tx rturn.

When running an LLC, you m b entitled to a ul of ddutin tht uld rdu your txbl income, inluding: t f gd ld, uimnt nd uli, ut expenses, ffi costs, and millnu ddutin. It’s iml: the mr tx ddutin ur buin can lgitimtl tk, th lwr it taxable rfit will b. Whn you’re totaling up ur business’s expenses t th end of th r, dn’t vrlk th imrtnt buin tx ddutin.

Didvntg of LLC

Frmtin nd Ongoing Exn f LLCs

To frm an LLC, your business lwr will rr nd fil n Artil f Orgniztin with th state. Mn states ruir nging f uh frnhi tax f nd some tt will require n annual rrt f th LLC. These fees are often nt vr xniv for small businesses, till frm $100 to $500.

Trnfr of Ownership Culd B Hrdr fr LLC

Ownrhi in n LLC can b harder to transfer thn with a Crrtin. With Crrtin, hr f tk can b sold t trnfr wnrhi. Hwvr with LLCs, all members mut approve dding new owners r ltring th wnrhi rntg f xiting owners.

Slf-Emlmnt Tx Disadvantage f LLC

Unl you h t b taxed lik a Corporation, LLC r uull subject t lf-mlmnt taxes. Thi means that the rfit f th LLC wnt b taxed at th rrt lvl, but will pass thrugh to it mmbr wh will account fr th rfit n their rnl fdrl tx rturn.

Sometimes, these taxes r highr than they would b t th rrt lvl. Individual members will fr fdrl itm lik Medicare nd Sil Surit. Fr this reason, if you do h t form an LLC, it a grt idea t k t a knowledgeable buin lawyer.

Limited Lif Didvntg f LLC

In some juriditin, if a member leaves n LLC, thn the LLC will to xit. Thi is unlik a Crrtin wh idntit is unaffected by th comings nd ging of shareholders. Mmbr f n LLC can dl and beat thi issue in th Operating Agreement which a contract lawyer at Ascent Law can draft for you.

Free Consultation with a Business Lawyer

If you are here, you probably have a business law issue you need help with, call Ascent Law for your free consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah

84088 United States
Telephone: (801) 676-5506

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