The Benefits of an LLC: Why You Need to Know How to Form an LLC
Because of the many benefits of a limited liability company, one would think that establishing it was allowed to encourage people to develop companies, especially small businesses. In fact, it’s an argument that holds a lot of sense. An LLC combines the benefits of a corporation and that of a business partnership. Like everything else, it has its disadvantages, but the advantages far outweigh these disadvantages. On top of that, it’s easy to learn how to form an LLC, as the requirements to set up one is pretty self-explanatory.
One of these benefits is in the form of taxation flexibility. Since the IRS does not have any federal tax classification for an LCC business, the LCC can choose how it wants to be taxed. It has the option to be taxed as a sole proprietorship, as a partnership, or be taxed like a corporation. If the members choose a sole proprietorship or partnership classification, they can take advantage of the pass-through taxation. This means the profits and losses of the LCC “pass-through” its members. They are protected from double taxation, as they will be taxed once only. This is unlike a corporation classification, wherein the members will be taxed separately, plus the corporate tax that will be given to the LCC entity. In order to be classified, the LCC needs to submit certain legal documents or forms from the Internal Revenue Services.
Some may wonder why, if an LLC is this beneficial, some would bother to know how to incorporate their businesses. The answer to this is that all of these business structures have their benefits and downside. One cannot say for certain that a business structure is better than the other, because the choice depends on the size and nature of the company. It’s vital to weigh the pros and cons of a business structure carefully, and how it will affect your business.
One of these benefits is in the form of taxation flexibility. Since the IRS does not have any federal tax classification for an LCC business, the LCC can choose how it wants to be taxed. It has the option to be taxed as a sole proprietorship, as a partnership, or be taxed like a corporation. If the members choose a sole proprietorship or partnership classification, they can take advantage of the pass-through taxation. This means the profits and losses of the LCC “pass-through” its members. They are protected from double taxation, as they will be taxed once only. This is unlike a corporation classification, wherein the members will be taxed separately, plus the corporate tax that will be given to the LCC entity. In order to be classified, the LCC needs to submit certain legal documents or forms from the Internal Revenue Services.
Some may wonder why, if an LLC is this beneficial, some would bother to know how to incorporate their businesses. The answer to this is that all of these business structures have their benefits and downside. One cannot say for certain that a business structure is better than the other, because the choice depends on the size and nature of the company. It’s vital to weigh the pros and cons of a business structure carefully, and how it will affect your business.
