LLC or limited liability company is the form of business popular among small business owners. This business form will provide small business owners with tax advantages, management flexibility, and liability protection. Here’s the explanation about the business structure of limited liability company.
What Is LLC?
LLC is a business structure that will provide business owners pass-through taxation and limited liability protection. In the context of corporations, LLC exists legally as a separate entity from the owner. Because of this, owners can’t be held responsible for all the business liabilities and debts.
Because its income is not taxed at the entity level, limited liability company allows for pass-through taxation. However, if the LLC has more than one owner, a tax return for the limited liability company will have to be completed. Any loss or income form the LLC shown on the return is passed to the owners and the owners then will have to report any income or loss on their tax returns and have to pay any necessary tax.
Pros and Cons
The biggest pro of LLC is of course the limited liability. The owners limited liability company are protected from any liability for acts of the LLC or the other owners. Creditors are not allowed to pursue personal assets of the owners to pay business debts.
Another advantage is the flexibility of membership. There’s no limit on the number of members, and the members can be trusts, partnerships, individuals, and corporations. S corporations for comparison, are way more restricted in term of who can be the stake holders and there’s a limit on the members.
Meanwhile, one of the con of forming an LLC is that it costs more than a sole proprietorship or general partnership to form and maintain. Not only that, there are also initial formation fee, and state imposed fees such as franchise tax fees or annual reports.
Another con of LLC is compared to a corporation, the process of transferring ownership is more difficult. In LLCs, unless the members reject it, all members must agree in altering the ownership percentages of the members, or adding new members.
That’s all you need to know about LLC. Before choosing it as the form for your business, please make sure this is the correct business structure for you no wor in the future. If your business is a digital one, you can try using Novobank as your digital bank.
