Getting started with your own business is a herculean task. From idea generation to filing, the company involves exhausting hours of hard work. However, the excitement of owning a dream business surmounts the hardship. For a beginner, legal affairs are overwhelming. It is tough to choose how to form a company, as an LLC formation or Corporation, or some other. Nonetheless, it is a decision that needs to be made with a thorough understanding as it has far more repercussions than often anticipated.
Basics of LLC Formation
LLC is pretty a newer form of registering a business. It subjugates attributes of a corporation and a partnership. The flexibility of having partners in a company with no cap can bring inaccessible capital. At the same time, LLC takes away personal liability and protects individual assets from capsizing into the business.
Advantages of LLC
- Limited liabilities
LLC isolates personal assets from business assets. Hence, it prevents personal assets from divulging into business in case of debts. The company members are still responsible for the liabilities, but it is subject to the investments made in the industry.
- Tax saving
LLC formation allows tax saving as the IRS does not consider it to be an individual body. Instead, tax is on the individual members as sole proprietors and pay through personal taxes. The profits are divided among the members and hence, are counted as individual income. The tax returns are required to be filed either as partnership, corporation, or sole proprietorship.
- Easy to operate
The biggest attraction for start-ups and small businesses towards LLC is its ease of operation. LLC requires the least amount of paperwork to be done and filed. It has few compliance requirements and most flexible in terms of record keeping. LLC can specify its operation with an internal agreement, or else, the state dictates the process. LLC does not require to have a board of directors or annual meetings. Strict ledger keeping is also not needed for LLC. Hence, with minimal maintenance cost and compliance issues, LLC is relatively smooth to operate.
- Flexibility of investment
With investments, too, LLC offers stretched-out flexibility. There is no ceiling to the number of partners that can be brought into the business for investment. Also, an investor can invest without owning anything in the business. The flexibility of an LLC further extends to the fact that investment is not dependent on the share held by an individual in the business. For example, if a person owns 25% of the LLC, the initial investment need not be of the same share.
LLC has become popular with easy-to-operate features among startups, small businesses, and businesses that involve unforeseen circumstances. Some businesses like real estate and construction industries are often exposed to unexpected scenarios where the protection of personal assets is viable for the family. Such businesses start with LLC formation as it involves a minor amount of hassle. Initial filing costs of LLC are higher than their counterparts. Yet, the tax deductions provide a helping hand in covering costs.