Why You Should Choose Incorporating an LLC

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The limited liability company is considered the rising star in corporations. More people consider this corporate structure as more advantageous for their enterprises, especially for small businesses.

This is quite true, as a limited liability company offers several benefits for the fledgling business especially in the aspects of taxation and personal liability.

There are three kinds of company structures that your business can take the form of. You, as a business owner, take a pick and apply for incorporation using that structure. Each form of incorporation has different ways of being taxed, and has different requirements asked for by the government.

Out of the three types of corporations, it is the limited liability company approach that most new entrepreneurs of the present generation take. This is because it has a lot more advantages and is somewhat “tailored” to the needs and capabilities of neophyte businesses.

The Benefits of a Limited Liability Company

A limited liability company is best defined as a hybrid between the classic C-corporation and the less stringent S-corporation. It has the advantages found in both corporate structures, which is why most young entrepreneurs who want to earn as much profits as possible while paying as little tax as possible would take this approach.

Single Tax Statement

You could see here that the LLC structure has its main advantage in taxation. In this sense, it is similar to an S-corporation which has a “pass-through” taxation scheme. When we say pass-through, it simply means that whatever profits a business owner earns from his enterprise, they are simply integrated into his personal income statement and calculated together with his personal salary. Better yet, owners of an LLC can offset their losses and report them in their personal income tax statement.

This is different from a C-corporation, where the owner has to pay taxes as a corporation and as an individual who is earning from the company. Worse, C-corporations pay taxes not only to the federal government but also to the individual states where it operates. Bonuses and dividends issued to employees are also taxable on their personal income statement.

Personal Liability

On the other hand, limited liability companies are similar to C-corporations in terms of personal liability. In an LLC, owners are not directly responsible or answerable financially when it comes to debts and missed payments. So, if your businesses default on a loan, the loan is charged in the name of the company and so you would only have to pay from whatever money that the company has. Owners don’t have to reach into their own pockets in order to pay off debts made on their capacity as business managers. The last thing you’d want to have is to exhaust all your savings even after your business has foundered and closed down.
 

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