When a person decides that they want to become self-employed and form a business, they must decide on the kind of business structure they want. Some of the most well known business structures are a sole-proprietorship, partnership, or a corporation, but LLCs are increasing in popularity. A LLC is also known as a limited liability company, and it’s a cross between a corporation and a partnership.
Advantages of a Limited Liability Company
A limited liability company is sometimes viewed by many people as a combination between a corporation and a partnership.
The owners of a limited liability company are not considered to be partners or shareholders - they are considered to be members. A limited liability company can have an unlimited number of members, and the members can be individuals, corporations, or other limited liability companies.
As a limited liability company, any losses, profits, or expenses go to each individual member of the company. So a member of a limited liability company will avoid paying taxes twice - he/she will be exempt from corporation tax and individual tax.
Limited liability companies have the flexibility in that they can distribute their profits among members as per their own regulations, without having to abide by the rules of any external organisations.
Whereas a partnership or other companies have to distribute their profits 50/50, a limited liability company has the flexibility to distribute profits in any way they would like to, as long as the members agree to the profit distribution.
Limited liability companies do not stay around forever, because when a member of a limited liability company passes away or files for bankruptcy, the limited liability company is dissolved. Other business structures can live and stay around forever. Complexity
Forming a business structure such as a partnership or sole proprietorship, has less paper work involved than a limited liability company. To form a limited liability company, there are articles of organisation and an operating agreement that needs to be drawn-up and filed. These documents can be drawn-up by a lawyer or any member of a limited liability company. State rules
A person thinking about starting a limited liability company should conduct further research, because most states have their own rules regarding formation of a limited liability company.