Benefits of LLC Registration
An LLC is the right choice for business owners who are looking to protect their personal assets .
What are the benefits of an LLC?
Some of the benefits of an LLC include personal liability protection, tax flexibility, their easy startup process, less compliance paperwork, management flexibility, distribution flexibility, few ownership restrictions, charging orders, and the credibility they can give a business
An LLC is the right choice for any business owner who is looking to:
- Protect their personal assets
- Have tax choices that benefit their bottom line
- Grow their business
- Gain credibility with customers
Limited Personal Liability
If your business is a sole proprietorship or a partnership, you and your business are legally the same "person." Your business debts are also your personal debts. And if your business partner or employee is accused of negligence, your personal assets might be at risk.
Less Paperwork
Corporations also offer limited liability, but they have to observe certain requirements that may not be well suited to a small, informally run business. For instance, corporations typically must hold annual shareholder meetings, make annual reports and pay annual fees to the state. They also tend to have substantial recordkeeping requirements.
Avoid Double Taxation
LLCs get the best of all worlds when it comes to taxation. LLCs don't have their own federal tax classification, but can adopt the tax status of sole proprietorships, partnerships, S corporations or C corporations.
The Internal Revenue Service automatically classifies LLCs as either partnerships or sole proprietorships, depending on whether they have one owner or more than one owner. This means that LLCs can always take advantage of "pass-through" taxation in which the LLC does not pay any LLC taxes or corporate taxes. Instead, the LLC's income and expenses pass through to the owners' personal tax returns, and the owners pay personal income tax on any profits.
Credibility
Forming an LLC is a step up in credibility from a sole proprietorship or partnership. Customers and other businesses will find an LLC more credible, and starting an LLC can show people that you are taking your business seriously.
Profit Sharing Flexibility
One advantage a multi-member LLC has is the ability for members to decide how to share profits. Corporations issue dividends on stock according to the number of shares owned, and partnerships normally split profits among partners, but an LLC can elect how its profits are shared, not shared or otherwise distributed. Beware, however, that IRS rules about special allocation of profits may require profit sharing to reflect ownership percentages or legitimate economic need or circumstance—and not be some attempt to avoid paying taxes.
