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)!
Unlike corporations, LLCs offer more flexibility:
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:
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.