If you are certain to open up a business and are ready to venture, you have to choose a legal structure for the safety of your business and register it with the government. Every business should be registered as a requirement from regulatory authority embodied by the law. Every business has a variety of legal structures to choose from such as sole proprietorship, partnership and limited liability company. In this gesture, most businesses choose to be affiliated in a limited liability company because it offers limited benefits and flexibility to the business.
A limited liability company or other known as LLC is a business structure that offers a limited liability protection to a small and medium-sized corporation, its tax efficiency and operational flexibility of a partnership. It is an attractive approach to organize smaller businesses that don’t have a plan to enhance its operation. Aside from providing a safeguard for personal protection and fringe benefit of a business it also exempt liability of tax for any business corporation. Rather than shareholders, most owners of a business who are affiliated to an LLC are referred to as members. Some of the benefits are found below in using a limited liability company for your business.
Flow-through Structured Scheme
A limited liability company is a structured business system seeking a pass through channel of protection in its losses to its members. Just like the owners of a partnership, each member will report its profit and loss of their personal federal tax returns to the LLC. However, the income of a flow-through system of its members is treated as the income of the owners. In this way, the owners of an LLC are able to shy away to a double taxation scheme. Thus, makes every individual owner to be taxed instead of a company. In contrast, the managing member is not exempted and pays his self-employment tax instead.
Limited Principle of Liability
Limited liability company is created to provide assistance to every business owner the benefits of a corporation without any administrative responsibilities. However they have a limited personal liability for any lawsuits against the company who has the responsibilities to protect their assets. When in fact, their assets are also protected from any lawsuits filed by the LLC against its own members. Furthermore, the owner will not need to abide in making any record keeping, attend board meetings and comply with administrative duties of a corporation.
Limited liability company is an organizational structure that is binded with several regulations. In contrast to a corporation or partnership, the LLC can accept an unlimited number of members which have a participating freedom to their rights in the business. And according to the entrepreneur code, three or more people have the rights to form a corporation. Another privilege of the LLC is they can receive guaranteed payments or pay themselves according to their will. However, if the member chooses a guaranteed payment, that amount is eligible to be taxed for their healthcare insurance and can take their loan back plus the interest thereon.