Running a limited liability company, also known as an LLC, can be viewed as the most profitable way of doing things. LLCs are corporate structures in which the owners are not liable for debts incurred by the company. Mind you, having such a structure protects your company from not only the present liabilities but also from recurring and future ones. For new people, how to start an LLC is a very difficult question.
An LLC structure shares almost the same similarities with a partnership type of business or a corporation. These are entities that allow for maximum profitability, one of the key considerations that are critical when forming a business structure. The following are the top benefits of starting your business as an LLC.
1. No Taxation And Pass-Through Deductions
Other standard entities face double income taxation. The entity’s profits are taxed as income and the owners must pay taxes on any dividends. Running an LLC allows allocated profits to be taxed on members individually according to their own individual income tax returns. This is what is referred to as pass-through deductions. Taxes are recurring expenses that are unavoidable in other forms of business structures and forming an LLC avoids double taxation and by this, allowing for maximum profitability. Additionally, LLC provides owners with more simplistic methods of accounting for taxes. However, you’ll not be exempt from state requirements when running an LLC. These are obligations that have to do with registering your business, publication fees, and business licenses. You could benefit from having a registered agent act as your liaison between your franchise and the state when it comes to handling legal documents.
2. Limits One’s Liabilities
LLC is viewed as a very legal structure that’s separate from its owners. This is the same structure used in shareholder type of business/company and corporations. LLC owners are not liable for any debts incurred by the company. Unlike in sole proprietorships, the LLC legal obligations usually don’t allow owners’ assets such as land or bank accounts to be at risk.
3. Less Paperwork And Easy Administration
Maintaining an LLC is very easy and requires minimal paperwork than other corporate structures. To register an LLC’s existence, you’ll only be required to file articles of the company and pay a certain amount of fee to the relevant state authorities. As earlier mentioned, you can have a registered agent handle the legalities and other paperwork requirements. Their role might involve filing the LLC name, the geographical location of its main offices, shareholders’ identities, the duration of which the business will run, and any other important information concerning the business.
4. Flexibility In Profit Sharing
Most business structures distribute profits depending on an individual capital percentage of the ownership interest. Whereas in LLC, the shareholders retain the flexibility to determine the profit allocation under the terms in the LLC’s operating agreement. Though LLCs may not dole out profits at certain times such as when the LLC’s liabilities are greater than its profits, members are still required to give their best towards the company’s operations for maximum profitability.
5. Run Your Course
Entrepreneurs are people who prefer to run their shows. As a person, you can make your own decisions without consultation or the approval from partners or having your decisions go through a board meeting. Like in a sole proprietorship, one owns, manages, and operates their business. However, this is without the various managerial aspects of running a business. You’ll still want to have an efficient way of running and managing your business.
6. There Are No Restrictions On Ownership
The LLC does not have any restrictions in ownership. It allows foreigners to have shares in the LLC if interested. Moreover, other corporate companies may also join the LLC. There are also no limitations to the number of owners an LLC can have. But then again, the LLC structure requires that there be a formal and legally binding agreement where all members (owners) agree to certain terms.
7. Minimal Compliance Requirements
LLC type of companies are subjected to very limited annual filing requirements and other formalities. The same cannot be said about corporations and businesses running under a different structure. However, LLCs are not free from the operational requirements that have to do with production, annual general meetings for members, or the recording of share distribution to members.
If you are considering starting a business or company, then you might be interested in the LLC mode of doing things. It’s not only a simple structure but you’ll be at a vantage point in avoiding the liabilities that come with managing and running the company. In essence, there’s quite a lot you can benefit from running an LLC and the above pointers speak for themselves. It’s however of utmost importance that you familiarize yourself with not only the legal requirements of an LLC but also, on ways to form a workable structure.