Your ad here - Click here for details
Three Reasons to Form a Limited Liability Company
Search:

Home | Business | Small Business

 
 

Three Reasons to Form a Limited Liability Company

By: Steve Nelson

Want to limit your business liability? While many business owners choose to form a regular corporation, a limited liability company often makes more sense for three important reasons.

Reason #1: Really Easy Setup

Most states let you form a limited liability company simply by downloading and then filling out a simple one or two page form.

In other words, with an LLC, you often don't need an attorney or accountant to help with preparation of the formation documents. And with an LLC you typically don't need to complete incorporation tasks such as having an organizational meeting, electing a board of directors, having a board meeting to elect corporate officers, and so forth.

Reason #2: Better Liability Protection

Some people wonder if limited liability companies offer protection as good as a regular corporation. But quite possibly, a limited liability company offers you better protection than a regular corporation-and for two big reasons.

The first factor that explains the better liability protection of a limited liability company concerns the LLC's simpler operation. A limited liability company should be easier to operate which means you're less likely to inadvertently weaken the liability protection by making some mistake or forgetting to take care of some corporate task.

For example, with a corporation, you might get sloppy and not have regular shareholder meetings or board of directors meetings. These sorts of omissions could weaken the liability protection of the corporation.

With a limited liability company, you often don't need to have shareholder meetings or a board of directors-which you can't screw up these items.

A second factor, the use of charging orders, can also mean that a limited liability company offers better asset protection. But let me explain. If you own shares in a regular corporation, your personal creditors may in a worst-case scenario be able to gain ownership of your shares of stock for something that happens outside the corporation.

For example, if you get sued because some young child gets hurt in your home's backyard, you might lose assets you own like your home and the shares in your small business corporation.
With a limited liability company, however, many states say a personal creditor can only grab your share of the distributions the limited liability company makes to owners. (This is the actual charging order.)
In other words, in many states, even in a worst-case scenario, you might not lose control or ownership of a limited liability company. The worst-case scenario might be that should you decide to make a distribution to owners, you would have to give the money to the personal creditor with the charging order.

Obviously, a charging order leaves an LLC owner tremendous leverage in negotiating with personal creditors even in a worst-case scenario.

Reason #3: Total Tax Flexibility

A third big reason to consider using a limited liability company concerns income taxation of the business. In a nutshell, a limited liability company gets to choose how it wants to be treated for income purposes.
A one owner LLC (called a single member limited liability company) by default gets treated as a sole proprietorship. But the single member LLC can often make an election to be taxed as an S corporation or as a regular C corporation.
A multiple owner LLC (called a multiple member limited liability company) by default gets treated as a partnership.
But, again, the multiple member LLC can often make an election to be taxed as an S corporation or regular Corporation.

Note: The entity is still a limited liability company for state law purposes. However, for federal and usually state tax purposes, the entity can be considered an S or C corporation after making the tax elections.

The tax flexibility afforded by a limited liability company often means a business owner can keep his or her accounting really simple in the early years of operation. And of course, that saves money and time.
In later years, after the firm establishes itself, the LLC for tax purposes can morph into an S or C corporation if a corporation saves the business or the owner taxes.

Article Source: http://articlenexus.com

CPA Stephen L. Nelson is the author of downloadable do-it-yourself kits for Incorporating in Illinois, Incorporating in New York and Incorporating in Pennsylvania.

Please Rate this Article

 

Not yet Rated

Click the XML Icon Above to Receive Small Business Articles Via RSS!
Additional Articles From - Home | Business | Small Business
Sign Up for a free account
Submit Articles
Member Login
Top Authors
Most Popular Articles
Submission Guidelines
Ezine Notifications
Article RSS Feeds
(Your 160x160 ad here)
Only $50 a month-click here
Everything you need for your website and home business.
Adsense Site Builder
Adsense Analyzer Software
Clip Art
Domain Names
Header Graphics
Internet Business Info
Photo Art
SEO Software
Web Hosting $4.95/mo
Website Templates
Web Site Promotion Tools

AdvancedWebsiteTools.com

Link Exchange
Blog by WordPress
Privacy Policy
Terms of Service
About Us
Contact Us
Banner Advertisements
Business Reporter
Have you Victimized by a Business or the Government? File your consumer complaints or business complaints at BusinessReporter.net!
Structured Settlement?
Free information to help you learn more about structured settlements, your rights, and how to select the best company for you.
Affordable Discount Dental Plans
Choose from over 30 top-quality national and regional discount dental plans. Save 10% to 60% on most dental procedures
hair loss remedies Hair Loss Remedies
Remove Bad Credit
Legally Erase Bad Credit and Improve Your Credit Rating
with Self Help Credit Repair
Do It Yourself Credit Repair

Free Diabetic Supplies
Antique Radios | Ham Radios

Powered by Article Dashboard