LLC(limited liability company)
The limited liability company, or LLC, is one of the newest business types offered in the United States today. This entity type is also the most often selected by new business owners when they setup a business. There are a few reasons for this that we will go into, but in general this is done to limit risk, get tax advantages, and other structural benefits. When you setup a business in any US state, you will want to do it to gain as many tax advantages and risk mitigation benefits as possible. Read on for the LLC and see how it fits for your situation, then you can compare with the corporation.
History & Popularity of the LLC
The LLC was first issued by the State of Wyoming in 1977, while the first corporation was in 1347. That's about 600 years difference. So when we say that the LLC is a newer form of business entity, we are relatively speaking. In fact most people would say that the LLC is quite mature entity type, and in reality it is. So, you should feel very comfortable with filing for an LLC within your state. The state of Florida reported in 2017 that 263,000 LLCs were formed compared to just 101,000 corporations. So, you can start to see just how popular the LLC filing type is.
Advantages of the LLC
There are a few important advantages that are worth mentioning. Now remember that each state has their owner corporate code & statutes, so check with each state to verify their laws. Let's discuss the issues:
1) The first item is "Limited Liability Protection".
The concept of limited liability protection is very important to all LLC owners. Limited liability protection helps the business to keep the business assets separate from the personal assets of the owners.
2) Pass Through Taxation
The benefit fo Pass Through Taxation is one that allows the LLC to pass through the income it earns directly to the tax return of the members(owners). This will help to prevent double taxation, or the issue of one income being taxed two times. Double taxation typically occurs when income is first taxed when earned by a corporation, then taxed again when distributed as a dividend. The LLC is a pass through by default, and thus cannot be subject to double taxation in the example that was provided.
3) Held by a Trust
The LLC can be placed inside of a trust, allowing for more complicated tax and estate planning. Corporations shares can also be owned by a trust, but the ability of these entities to help in estate planning can be valuable. The issue of estate planning is beyond the scope of this website, and if you need help definitely reach out to an estate attorney or CPA in your area.
Frequently Asked Questions
- What is an LLC?
- How do I form an LLC?
- How to form an LLC?
- How to Search for an LLC Name
- Registered Agent for an LLC
- What is an LLC Member?
To Manage, or Not to Manage
Just as the old phrase goes, the owners of the LLC do not need to actually manage the business. They have the option to hire outside managers. The owners don't need to do any of the daily management of the company, essentially they can be silent owners. Kinda cool that the owners can get the protections of the entity structure without being required to manage it daily.