After deciding what type of products or services you are going to offer, the most important decision you will make in start a new business is the type of business structure to form. You will be faced with deciding whether to form a General Partnership, S-Corporation, C-Corporation, Venture Capital or Limited Liability Company. If you are starting a small or home business a Limited Liability Company or LLC is your best choice hands down.
A Limited Liability Company (LLC) provides you best of all Worlds, in that it is a type of business ownership combining several features of corporation and partnership structures. Unlike a general partnership, owners of an Limited Liability (LLC) have limited liability. Which mean an owner of LLC can not lose more than the amount he or she has invested in the company. Thus, the owner is not personally responsible for the debts and obligations of the company in the event they are not fulfilled. And, unlike a limited partnership, owners of a Limited Liability Company (LLC) do not lose their limited liability by actively participating in management of the business.
A Limited Liability Company (LLC) also have many advantages over the most popular business structure, the Corporation. The Limited Liability Company (LLC) and the S Corporation both have the benefit of pass-through taxation. This means that owners in the company report their share of profits and losses on each owner’s individual tax return. The IRS assesses no separate tax on the company itself. However, in the C Corporation “double taxation” occurs when the C corporation first pays taxes on its own earnings and then the shareholders or owners pay income taxes on the dividends they receive.
Even though the tax status of a Limited Liability Company and a S Corp are almost identical, the Limited Liability( LLC) can offer small and home business owners many advantages over a Corporation. A Limited Liability Company (LLC) is much easier to form. Requirements for forming a corporation and filing the necessary documents with the IRS to have it be taxed as an S corporation is a complex and time-consuming process. With a LLC you simply file a Certificate of Formation or Articles of Organization with proper state agency, in most states it is the Secretary of States. Unless you choice to do otherwise, single-member Limited Liability Companies are automatically taxed as sole proprietors by the IRS. Limited Liability with multiple owners are automatically taxed as partnerships. Which is much different from the Corporation which must file IRS Form 2553, “Election by a Small Business Corporation,” within 75 days of the corporation’s formation to obtain pass-through status as an S corporation.
Other attractive benefits of Limited Liabilities Companies (LLC). In contrasted to Corporations, LLCs are not required to hold annual meetings or keep formal meeting minutes. Owners of a Limited Liability Companies do not have to issue stocks to the owners. There is no limit to the number of members who may have an ownership interest in the company.
There are some draw backs to an LLC but as it relates to small or home business owner they are so insignificant they are no worth mentioning. It clear that an Limited Liability Company is a small business owner’s dream. It provide the protection of corporation, while maintaining the simplicity of a partnership. With LLC you will have more time to focus on the important details of your business and not spending precious time pushing useless paper.