Is an LLC
right for you?
A limited
liability company is a hybrid type of legal structure that provides the limited
liability features of a corporation and the tax efficiencies and operational
flexibility of a partnership.
The
"owners" of an LLC are referred to as "members." All LLC
members are protected from personal liability for business debts and claims.
This means that if the business itself can't pay a creditor -- such as a
supplier, a lender, or a landlord -- the creditor cannot legally come after an
LLC member's house, car, or other personal possessions. Because only LLC assets
are used to pay off business debts, LLC owners stand to lose only the money
that they've invested in the LLC.
Unlike
shareholders in a corporation, LLCs are not taxed as a separate business
entity. Instead, all profits and losses are "passed through" the
business to each member of the LLC. LLC members report profits and losses on
their personal federal tax returns, just like the owners of a partnership
would.
Advantages of
an LLC
·
Limited
Liability. Members are protected from personal liability for business decisions
or actions of the LLC.
·
Less
Recordkeeping. An LLC's operational ease is one of its greatest advantages.
Compared to an S-Corporation, there is less registration paperwork and there
are smaller start-up costs.
·
Sharing
of Profits. There are fewer restrictions on profit sharing within an LLC, as members
distribute profits as they see fit.
Disadvantages
of an LLC
·
Limited
Life. In many states, when a member leaves an LLC, the business is dissolved
and the members must fulfill all remaining legal and business obligations to
close the business. The remaining members can decide if they want to start a
new LLC or part ways. However, you can include provisions in your operating
agreement to prolong the life of the LLC if a member decides to leave the
business.
·
Self-Employment
Taxes. Members of an LLC are considered self-employed and must pay the
self-employment tax contributions towards Medicare and Social Security. The
entire net income of the LLC is subject to this tax.
If you have
questions and would like more information please contact us, we would be happy
to help.
