Why an LLC is a Preferred Vehicle For Starting a Business

Have you thought about forming a Limited Liability Company (“LLC”)? Well, I’ve answered all
your questions below!


Why an LLC vs. any other type of business?

Unlike other business forms, LLCs provide liability protection, management flexibility, and tax advantages.


What is an LLC?

A Limited Liability Company is a business that is a separate entity from you, the owner. An LLC protects your personal liability should your company face any debts or lawsuits. That means, if the business can’t pay a creditor, your personal possessions (house, car, etc.) will not be taken away to pay off the debt.


When is a good time to form an LLC?

Any time that feels right for you! But I like to say the sooner the better. Whether you’re changing your business to an LLC, or you’re starting a brand-new business you get all of these benefits for only $50 (a one-time fee)!


Flexibility

Unlike corporations, LLCs offer more flexibility:

  • No restrictions on the number, type (entities or individuals), or location of the business’s owners
  • If you have multiple members, your company can manage the owners’ rights and obligations in the Operating Agreement that will establish the following:
    • how members will run your business day-to-day and make important decisions
    • ownership percentages of each of the members
    • voting rights of each of the members
    • obligations of each of the members to the business and each other
    • a process to sell membership interests
  • You have the flexibility to decide how your company will pay its taxes – which is a great incentive I’ll talk about below.

Tax Benefits

Since there isn’t a separate tax bracket for LLCs, you can be taxed as a sole proprietorship, partnership, or s corporation. Good news, that means you can avoid the double taxation that corporations have to pay.


As an LLC, you can take advantage of “pass-through” taxation, which I’ve broken down for you below:
● If you are a single member LLC you report the business’s profits and losses on your personal income taxes.
● If you are a multi-member LLC each member reports their percentage of the profits or losses on their personal tax return, which is established in your company’s Operating Agreement. Generally, the profits are split proportionally to each member’s interest in the company.


Now that I formed an LLC, Should I get an EIN?

While a single member LLC is not required to have an EIN, a multi-member LLC is required to have one. Regardless, there are many benefits to having one for your business. With an EIN, you can:

  1. Open a business bank account – most banks require you to have an EIN to open a business account, and it further separates your personal finances from your business.
  2. Add credibility to your business – vendors, banks, and even customers you do business with will take your business more seriously when you have a separate bank account for your business.
  3. Easily hire employees – there is no delay in the hiring process when you have an EIN and you can easily set up a payroll system.

Should I form a Professional LLC?

A Professional LLC (“PLLC”) is an entity type designated for licensed professionals recognized by the state (doctors, lawyers, etc). A PLLC offers the same liability protection for members as an LLC regarding creditors, however, you are still subject to malpractice claims.

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1/10/2022

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Why an LLC is a Preferred Vehicle For Starting a Business

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