Benefits of the LLC - Limited Liability Company

by : bizavings

An LLC or limited liability company is a form of business registration that allows the owners of a business to protect themselves from some of the liabilities of being in business and at the same time receive some of the tax benefits of other more elaborate business registrations like an incorporation or partnership. In order to register a business as an LLC or limited liability company the business has to prepare articles of organization and file them with the state in which they wish to register their business.

There are some fees applicable to registering a business as an LLC similar to registering a corporation. An added benefit is that you don't necessarily need a lawyer to register a business as an LLC and this is especially useful for small businesses where both time and cash is at a premium. You can choose to get advice from a lawyer or an accountant about the choice of registering a business as a limited liability company but it is not required by law.

As noted above some of the benefits of registering a business as an LLC include tax advantages and limited liability. In addition limited liability companies have much more flexibility when developing a management and ownership structure and the reporting requirements are far less under this form of business registration.

The tax benefits of an LLC business registration are mostly gained through what is called pass-through taxation. This means that the profits from the business are only taxed once and owners do not have to pay both corporate and personal income tax on any monies earned through the business.

The limited liability under an LLC makes a provision that limits the liability of owners and operators to the amount of money that they have invested in the firm. Any debts or responsibilities above those amounts are the liability of the corporate entity and not the ownership group.

Having the flexibility to develop their own management structure and ownership system is also a great advantage for a limited liability company versus incorporation. Under a corporate business registration regime the laws specify the number of officers and the responsibilities of Board of Directors to report to shareholders. This makes it difficult to separate the operation of the business from the desire to earn a maximum profit.

Finally the last advantage of having an LLC business registration is that it is much simpler to operate under than other formal forms of registration. There are minimal requirements for reporting to state and other regulatory bodies and unless a company desires to have one there is no requirement for a Board of Directors or an Annual General Meeting to approve management's handling of the business, although we recommend that you do so anyway.

All of these factors make a limited liability company or LLC an attractive business registration option for many small and medium sized businesses.