Many individuals decide to set up a company at some point in their lives. Some of them do it because they think their regular income is not enough. For others, it has been their dream during their entire lives. Forming a company is not as difficult as most people think. However, you need to be both mentally and financially prepared. It can be quite exhausting and time-consuming.
When setting up a company, you need to make a decision about what form of business entity you want to establish. Your choice determines the income tax return you will have to file. Most common company types are a partnership, corporation, sole proprietorship, and a limited liability company. If you have a small budget, you should create LLC. It is quick, simple, doesn’t include complicated procedures, and dealing with a lot of paperwork. That’s why many people find this solution quite attractive and beneficial.
It is the newest form of legal business structure and has the features of both a partnership and a corporation. Laws regarding the LLC are always evolving. It offers limited liability to its owners. However, to maintain its business status, it doesn’t have to meet rigid requirements and formalities. Additionally, it allows pass-through taxation.
Advantages of limited liability companies
The primary benefit is the protection of personal assets of the owners, in case the business doesn’t have sufficient financial funds to pay its debts. That’s why the name of this structure is limited liability. Owners are not responsible for the company’s debts and obligations with their personal assets. It is the key advantage in comparison to partnership and sole proprietorship. Also, partners have complete control and management of the business.
The second benefit is the pass-through taxation. If you decide to set up an LLC, your business itself won’t pay taxes to the government. However, the income or loss of the company will be included in the individual income tax return of the members. It is passed through to the owners, instead of paying it at a business level. Thanks to this, you will avoid double taxation. With corporations, both the company and the shareholders are paying taxes. The firm is doing it at a business level, while shareholders pay taxes on their dividends.
Additionally, forming and managing the limited liability company is easy. They have a flexible organization structure, management, and don’t have restrictions regarding the number of owners. The law doesn’t determine the structure. Members agree upon it themselves. These companies can have one, two, or several owners. They can find their responsibilities and rights in the operating agreement of the firm. Finally, choosing and starting a limited liability company increases the credibility of the business, as customers will see it as a formal commitment of the owners. Thanks to this, investors will look forward to working with your company. It will also attract clients, which will result in the growth of your business.