Are you forming a business? Choosing a suitable structure from the outset can avoid problems later when you are getting ready for growth. One of the more popular choices is the Limited Liability Company. Here are four reasons why.
LLCs are one of the more flexible types of business entities. Governance functions can be allocated among all of the members jointly, or limited to a certain number of managers. The operating agreement can delegate authority for various actions and events that the Company may encounter. Unlike with corporations, boards of directors and periodic meetings are not necessarily required. This means less administration and more time to actually run the business.
2. Limited Liability
One of the compelling reasons to form an entity is to protect your personal assets from risks associated with your business activities. The LLC format, when properly maintained and operated, provides such protection, so the liabilities of the business that accrue through operations do not transfer to the owners of the business.
3. Taxed as a Partnership or Individual
As a default, LLCs with multiple members are taxed as a partnership, and those with one member are disregarded and taxed to the individual. Thus, an LLC is a way to enjoy limited liability similar to a corporation, without the double-taxation of income to the corporation and to the shareholder. But if S-corp. tax treatment is or becomes appropriate, the LLC can generally make such an election by filing the relevant tax form in the beginning weeks of the Company, or for subsequent years.
Depending on the nature of the business, Series can be a useful way to partition liability. A Series LLC allows for the designation of subsidiaries under a common company. Each such Series is intended to create a separation of the assets and liabilities within it compared to any other series or the Company itself. This can be a useful way to administer a portfolio of different assets that each produce face their own unique risks and produce their own income. For example, some real estate investors like to hold each property in a separate series, rather than to pool multiple properties (and their respective risks) into one standard LLC.
Despite the advantages, LLCs are not right for every situation. We invite you to call us if you are preparing to form a new business venture. We can consult with you as to the best type of entity, as well as to assist you with the steps that follow the filing of the organizing documents.