What are the advantages to forming an LLC [Expert Answers]

Last updated : Sept 15, 2022
Written by : Shayla Bednarik
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What are the advantages to forming an LLC

What is the downside of an LLC?

Disadvantages of creating an LLC Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee. Many states also impose ongoing fees, such as annual report and/or franchise tax fees. Check with your Secretary of State's office.

What are the three main advantages of the LLC?

  • Run Your Own Show. Entrepreneurs are self-starters who prefer to chart their own courses.
  • Limit Your Personal Liability.
  • Avoid Double Taxation and Pass-Through Deduction.
  • Less Administrative Hassles and Paperwork.
  • Flexibility in Sharing Profits.

At what point do I need an LLC?

If you have business partners or employees, an LLC protects you from personal liability for your co-owners' or employees' actions. An LLC gives you a structure for operating your business, including making decisions, dividing profits and losses, and dealing with new or departing owners. An LLC offers taxation options.

How much does an LLC cost?

You can file the LLC filing documents online, by mail, or in-person when visiting the local SOS office. The filing costs usually vary from $50 to $150 which is a single-time fee. If you plan to form your company in another state, then you might have to provide additional documentation and pay a higher formation fee.

How does an LLC protect you?

Personal asset protection. An LLC provides its owner or owners with limited liability. This means that means you—the LLC owner—are generally not personally liable for any debts incurred by your LLC business or most business-related lawsuits.

Is a LLC a good idea?

An LLC's simple and adaptable business structure is perfect for many small businesses. While both corporations and LLCs offer their owners limited personal liability, owners of an LLC can also take advantage of LLC tax benefits, management flexibility and minimal recordkeeping and reporting requirements.

What does LLC mean for dummies?

An LLC, or limited liability company, is a U.S. business structure that combines the simplicity, flexibility and tax advantages of a partnership with the personal liability protection of a corporation. Owners of LLCs are called members.

How do taxes work for LLC?

For the purposes of federal income tax, LLCs are treated as pass-through entities, which means that LLCs themselves do not pay taxes on their business income. It is rather its members who pay the taxes on their share of LLC's profits.

Why are LLCs so popular?

A corporation requires a great deal of paperwork in filings, minutes of director meetings and other reports. LLCs avoid most of that paperwork. Corporations are also restrictive on who can be owners. There is no limit on the number of members an LLC can have.

What can you do with LLC?

An LLC is most often used to operate a business (you can have multiple businesses in one LLC), but LLCs can also be used to take title to assets. For example, an LLC can be created to own real estate (when should I form an LLC for real estate?), vehicles, boats, and aircraft.

Is it better to be self employed or LLC?

You can't avoid self-employment taxes entirely, but forming a corporation or an LLC could save you thousands of dollars every year. If you form an LLC, people can only sue you for its assets, while your personal assets stay protected. You can have your LLC taxed as an S Corporation to avoid self-employment taxes.

Should I start an LLC before making money?

Is an LLC Necessary To Start a Business? You don't need to start an LLC when establishing your business. However, if you want to differentiate between your assets and the company, an LLC is the right way to go. You should start an LLC if you want to start a business and protect your personal assets.

Do you need an LLC to write off business expenses?

What many self-employed people and small business owners don't realize is that you can still write off your business expenses without registering as an LLC.

Which state has the lowest LLC tax rate?

  • Range for individual income tax rates: None.
  • Average combined state and local sales tax rate: 1.76% (no state sales tax)
  • Effective property tax rate for homes: 1.02%
  • State ranking for business-friendly legal environment: 5.
  • LLC filing fee: $250.
  • LLC annual fee: $100.

How do I become an LLC?

To establish your LLC as a legal entity, you'll file a document with the state agency that handles business filings in your state. In most states, this document is called the articles of organization, but some states use a different name, such as a certificate of formation. Each state has a form you can use.

What is the difference between an LLC and a sole proprietorship?

An LLC exists separately from its owners—known as members. However, members are not personally responsible for business debts and liabilities. Instead, the LLC is responsible. A sole proprietorship is an unincorporated business owned and run by one person.

Can my LLC affect my personal credit?

Situations Affecting Personal Credit There are a few situations when a bankruptcy filed by a corporation, limited partnership, or LLC might affect your personal credit report. If an LLC has debts in its name, only the credit of the LLC is affected. The exception is if a member of the LLC guarantees the loan.

Will an LLC protect me from the IRS?

Limited Liability Company (LLC) For state purposes, an LLC is a business separate from its owner in which the owner is protected from the LLC's acts and debts, such as bankruptcy and lawsuits. For federal tax purposes, an LLC is disregarded as separate from its owner, therefore is liable for taxes.

What does an LLC not protect you against?

Thus, forming an LLC will not protect you against personal liability for your own negligence, malpractice, or other personal wrongdoing that you commit related to your business.

What is better for taxes LLC or S Corp?

LLCs. As an LLC owner, you'll incur steep self employment taxes on all net earnings from your business, whereas an S corporation classification would allow you to only pay those taxes on the salary you take from your company. However, itemized deductions could make an LLC a more lucrative choice for tax purposes.

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What are the advantages to forming an LLC

Comment by Aiko Burdell

hello and welcome today we are going to be talking about seven benefits of having an llc and if you've been following this channel for any period of time you'll know that llc's are pretty much the bee's knees when it comes to yes i said that when it comes to business entities because they are so amazing and they give you so much benefit for very little amount of effort so um before we get started i just wanted to introduce myself my name is taylor darcy from think legal and i am here to help you create the business of your dreams so welcome i look forward to getting to know you and please feel free to leave comments uh we go live every weekday except for holidays 11 a.m to answer your questions and to just hang out and find out what you need to help your business so that not only can i help you with it but that you can get real answers to your questions so please join me if you can at 11 a.m pacific standard time monday through friday obviously except for holidays the number one reason why a llc is has significant amounts of benefit is that it is a it's a hybrid organization a sole proprietor you're taxed on your earnings your revenue period that's just how it is so whatever you bring in minus your expenses uh that's what you're going to be taxed on the the same thing is true for an llc in fact a sole member llc is what's called a disregarded entity for tax purposes the irs looks at it and says nope that income goes straight to the person and so it's it's what's called pass-through taxation so you're not running the risk of double taxation which is what's true in a corporation so that's really one of the big big reasons that you wanted an llc is because of that pass-through taxation the it gives you the benefits without the downside of a corporation it's that's it's it's almost perfect it's not completely perfect it's not it's just very very good very very close it's it's also similar to if for a multi-member llc is similar to a partnership and and it runs similar to a partnership so keep that in mind it has llc rules but for tax purposes especially it's the same thing it's it's 50 of the profit is distributed unless otherwise agreed on so it's it's very very simple comparatively to a corporation to start to manage to things and and it provides you with perhaps one of the biggest benefits and this is why you would do this for a sole proprietor and a partnership is it provides you with limited liability protection which the typical version is that you are limited to the amount of money that you invest or property that's invested into that entity so the best example i can give you is if you have an llc that's done for a rental property then you the only thing that's at risk is the home that's in the rental property or that's the rental property rather than your personal assets especially if you have multiple homes uh or multiple rental properties and so one of the questions i get asked quite frequently is should i have one llc and then have all my homes in it or should i have an llc for each home if i have a rental property and the very easy answer is that you should have each home should have their own llc because then that way that's the most that they can attach assets if there was ever an issue that you needed to worry about that with so that's that's the easy answer to that now each situation is different so don't you know keep that in mind that you want to make sure that you're you're consulting a cpa for your accounting needs or you're consulting a attorney for your legal needs because otherwise you could run the risk of doing something like this is just general overall advice for you so keep that in mind as we discuss these issues that your state may have specific differences that may make one better than the other um the other the next part of it is not only does it it pass through taxation it's easy to operate it protects your personal assets as i said earlier so especially if you have like a 401k instead of uh or or any other type of of substantial assets stocks bonds mutual funds if if you were to be sued without an llc or a corporation for that matter then they could attach to your personal assets a big thing you want to avoid benefit of an llc is that it's easier to transfer or sell than a sole proprietor or partnership because it's an actual entity the entity owns all of the product services the products the assets uh real property uh tangible property and we talked about this a little bit yesterday in by or in previous video about buying and selling a business with an llc if everything is owned by the llc it's a simple transfer document to transfer it as opposed to you would literally have to transfer all the assets and everything that goes with it into another entity in order to transfer so it's a lot more work especially if you're ever considering and i mean ever considering transferring your ownership to a different person like you want to retire and you want to sell your business it's always better to have it as an llc than it is to try to do it as a sole proprietor so if that's something that's on your horizon you know yesterday is the best time today is your next best time to start that to do this so you really want to start looking at your goals and if if selling it is going to be part of that you want to make sure that you're preparing now because it only gets more complicated the older you get and and that's why you need to sit down and talk with an attorney for business planning um that so that we can help identify your goals and then make it so that you're getting what you need to to reach those goals the other thing that is very advantageous over a sole proprietor or partnership is that you can get investors if needed you can bring them on as part member and or have a position it opens the door to getting more money now a lot of investors are going to ask for c-corp and can always convert from an llc to a c-corp but especially if you're beginning that might be a little premature so keep that in mind that depends on the investor and depends on the type of money that you're getting so don't don't think this is a it's just easier than as a sole proprietor you're limited to debt only pretty much there's no real equity investment and so it's it's less expensive debt is always less expensive than equity but it's it's harder to get from a because of the risks that go with debt just it just is like lenders are harder to get than equity holders for uh for additional capital and that's that's crucial to know because again this is about planning for your future and not just winging it and if you're planning on or if you need investors then you're definitely going to want to set your business up for that type of success uh so that you can make sure that you're taken care of in in those instances so sitting down with an attorney and giving them exactly what you need can give you the the best outcome for the least amount of money because we can there's a we can fix a lot of things but the problem is is the more difficult it makes it or it gets the more likely it is going to be that it cause it costs more money and it's j

Thanks for your comment Aiko Burdell, have a nice day.
- Shayla Bednarik, Staff Member

Comment by filistrarg

simply put a limited liability company is the least complex business structure unlike a corporation an LLC structure is flexible it also gives you the perk of passed through taxes limited liability and legal protection for your personal assets plus the added benefits of looking more legit than other businesses which are not LLC's or corporations there are several specific advantages to a limited liability company but here are a few that stand out first there's limited liability forming an LLC helps protect your personal assets from liability for your business debts and obligations this means that if the business itself can't pay a creditor such as a supplier or lender or landlord the creditor cannot legally come after an LLC's members house car or other personal possessions because only entity assets are used to pay off business debts the owners stand to lose only the money that they've invested in the entity also incorporating your business helps to protect you personally if a business partner or employee is accused of wrongdoing however keep in mind that limited liability means limited liability which means that the members are not necessarily shielded from wrongful acts including those of your employees second you get passed through taxes which means you can essentially minimize how much taxes you pay an LLC is typically a pass-through tax entity which means that the profits and losses of the business passed through to its owners report them under personal tax returns just as they would if they owned a partnership or sole proprietorship third there's less record-keeping and LLC's operational ease is one of its greatest advantages compared to cooperation there is less registration paperwork does not require as much uh no paperwork or formalities as corporations and there are smaller startup costs for further discuss what the costs are forming an LLC are you'll soon find out that it's much cheaper than forming a corporation also there's no residency requirement members of an LLC do not need to be US citizens or permanent residents and lastly LLC's enjoy enhanced credibility partners suppliers and lenders may look more favorably on your business when you've formed an LLC for example if you're in an online drop shipping business wholesalers are constantly bombarded by people with great business plans who ask them a lot of questions take up a lot of time and then never order anything so if you're launching a new business be sure to have a limited liability company already set up so that when you call and want to start working with the whole seller you would look more credible as a limited liability company now that we've covered all the advantages of an LLC let's look at the drawbacks

Thanks filistrarg your participation is very much appreciated
- Shayla Bednarik

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