Companies LLC: Everything You Need to Know
With companies LLC, you should know that an LLC is one of the easiest business entities to register. 3 min read
2. LLC Advantages
3. LLC Disadvantages
4. LLC Registration
With companies LLC, you should know that an LLC is one of the easiest business entities to register. An LLC is a business structure where company members cannot be held liable for liabilities or debts that the business incurs. LLCs provide certain tax advantages in the same manner as a partnership, such as pass-through taxation. In essence, LLCs mix various business entities, including:
- Sole proprietorships
For instance, an LLC resembles the structure of a corporation, and the pass-through tax method is like features from a partnership. However, an LLC provides greater flexibility than a C or S corp.
LLCs are an attractive option during the start-up phase, mostly due to the avoidance of double taxation. They are also a relatively new phenomenon, and state and federal governments are still finding various ways to regulate them. Also, investment promoters tend to register LLCs to get around securities laws.
LLCs may come with advantageous features, but they do come with certain disadvantages, especially when compared to a corporation. For example, LLCs must be dissolved if a member dies or encounters bankruptcy. This is not the case with corporations, where the entity itself exists forever regardless of what happens to owners. Moreover, an LLC is a better choice if a founder wishes to take his or her company public in the future.
LLC come with more advantages than disadvantages, such as:
- Pass-through Taxation: Since LLCs incorporate pass-through taxation, owners do not need to submit corporate tax returns. LLC owners record their profits and losses on individual tax returns and only pay taxes from the personal return.
- No Residency Restrictions: LLC owners do not need to be U.S. citizens or permanent residents.
- Credibility: Supplies, lenders, and partners view LLCs more favorably than other business entities. Further, an LLC formation adds more legitimacy to your business affairs than a sole-proprietorship or partnership.
- Management Flexibility: LLCs have a more flexible management structure when compared to corporations. For instance, corporations must have a management system where directors reside over important business matters, and officers run daily operations of the business. LLCs are not beholden to such requirements.
- Profit Allocation: LLCs can dispense profits and losses without strict regulations.
- No Ownership Rules: LLC ownership is not restricted to 100 owners or less, unlike the structure of an S corp. Also, LLCs come with little to no ownership restrictions.
- Membership Tiers: LLCs are permitted more than one ownership class, unlike an S corp. LLCs can have various membership tiers based on how owners choose to invest in the company.
- Few Maintenance Requirements: LLCs do not have to adhere to as much annual paperwork obligations as corporations do. In addition, LLCs are not subject to meeting requirements in the same manner as a corporate structure.
- Ownership Consent: Written consent must be obtained before additional owners can be admitted into an LLC.
Although LLCs provide certain advantages, you must be aware of additional disadvantages:
- Limited Growth: LLC owners may not dispense stock shares to investors.
- No Uniformity: LLC regulation varies by state.
- Self-Employment Taxes: LLCs are subject to self-employment taxes, which can be quite high. On the other hand, an S corp allows owners to save on self-employment taxes by offsetting non-business related income with business losses. Such an advantage is not available to a C corp.
- Asset Taxation: Your assets could be taxed if you turn an existing business entity into an LLC, giving way to additional taxation.
- Added Losses: Another advantage of an S corp is that it allows owners to use losses from the business on their individual tax returns.
Before registering your LLC, you must choose a name and reserve it accordingly. After, you need to register the name with the secretary of state in your respective state. You need to file an articles of organization with the secretary of state office to successfully run the business. You must also decide the member system within your LLC, most notably who will be running the organization. Once your business gets established, you must obtain the necessary certificates and licenses based on your profession.
To learn more about companies LLC, submit your legal inquiry to our UpCounsel marketplace. UpCounsel’s lawyers have graduated from some of the best law schools in the nation and will help you determine if an LLC is the right choice for your business endeavors. Also, they will guide you through the LLC filing process, including the necessary maintenance procedures you need to be aware of.