The Limited Liability Company or LLC is quickly becoming the preferred business structure of choice for those looking to start a business.  For good reason too – LLC’s are simple to setup, cheap to start and offer great benefits.

You have the dream.  Now it's time to make that dream a reality.  According to an article by Forbes, when starting a business, only 50% survive their first five years, with a third making it to the ten year mark.  With odds like that it’s best to understand all of the options and benefits available to you, so let's take a look at what they are!  

*Keep in mind, this is not coming from a lawyer's office and should not be considered legal advice.

An LLC is unlike any other business structure available.  The U.S. Small Business Administration defines an LLC as using a hybrid type legal structure, providing the same limited liability of a corporation, mixed with the tax efficiencies and operational flexibility of a partnership. Taking the best of both structures and combining them is only one of the many benefits when starting an LLC.

Better Personal Protection

Due to the hybrid structure and the limited liability shared with corporations, LLCs provide incredible protection for their owners, or members, as they are known.  Members are not personally responsible for the businesses debts or liabilities.  Furthermore, creditors are not allowed to pursue the personal assets (house, savings, accounts, etc.) of the members to settle business debts.  Only the LLCs assets are to be used when settling any outstanding business debts.  This boils down to the owners only losing what they have invested into the business should things go south.

Pass Through Taxation

Being taxed as an LLC allows you certain freedoms.  As an LLC you get to elect how you would like to be taxed - as a corporation, a partnership, or as a sole proprietor.

Being taxed as if the LLC were a partnership or sole proprietorship is one of the main reasons people start this type of business.  Pass through taxation allows for all profits and losses to be “passed through” the business onto each member of the LLC.  Each member would then report profits and losses on their personal federal tax returns.

Credibility

Credibility is going to be crucial throughout the life of your business and will be paramount to its overall success.  Forming an LLC is the first substantial step to creating your empire.  It shows both commitment and dedication, giving you and your business more credibility in the eyes of your investors, customers and employees. 

Low Restrictions and Flexible Structure

Another popular benefit are the limited restrictions for who can own of an LLC.  Ownership can be obtained by a single individual or any combination of individuals, corporations, other LLCs or foreign entities.  The low restrictions for ownership allows for a business structure that is just as flexible.  As long as all the members agree, an LLC can create any type of organizational structure they would like.

Take the Good with the Bad

Just like in life, not everything is positive.  There are a few potential disadvantages that you should be aware of.  

• Since the LLC is a newer form of business structure, there is much less precedent available for reference when compared to other types of businesses.
• Depending on the state, you may be required to file an Article of Organization or other state specific paperwork.  Make sure you check with the Secretary of State office as well as your Local Small Business Administration to see what state specific forms are required.
• There are certain types of companies that cannot form an LLC, such as banks and insurance companies.  Check your state’s requirements and the federal tax regulations for further information.          

Though there are a few disadvantages, these are generally outweighed by the flexibility, protection and tax advantages gained when forming an LLC.  The Limited Liability Company structure is not ideal for every type of business, but if you are looking to start a small business, an LLC is a very popular choice.

Not sure about your next step?  BizX has helped thousands of companies take their business to the next level.