What are the Benefits of an LLC?

The limited liability company was specifically created to provide the benefits of the other entity choices (corporations, partnerships) but without the disadvantages of those same entities. So, in effect. this best of breed entity gives you, as a business owner, the best of both worlds when it comes to limiting liability, corporations provide the same protection but the LLC more provides flexibility to run your business the way you want and the choice of how you want your business to be taxed!

• Limited Liability Protection- The biggest benefit when you set up an LLC  is that you, as an owner of the business, will be shielded from being personally liable for the debts, obligations and lawsuits of the business unless you specifically agree to be liable or you engage in unlawful conduct.  In today's lawsuit crazed world, you will be completely at risk and vulnerable without the use of a separate legal entity (llc corporation).  The LLC is referred to often as a limited liability corporation because it offers the same protection as a corporation.

• No Restrictions on Type or # of Owners - A limited liability company can have only one owner (called a Member) or it can have thousands.  There is no limitation on the number of Members.  Plus, anyone can be a Member. In addition to US persons, foreign persons may own a limited liability company and any other kind of entity can own an LLC (corporation, trust, partnership or another LLC).  While these benefits apply to C corporations, if a corporation wants to be taxed as an S corporation, there are substantial limitations on the type of owners and the number of owners.

• Tax Choices - The Members of a limited liability company can choose how the LLC business will be taxed.  The decision of how you want your business to be taxed is one that requires some thought and analysis.  The important thing to know is that the limited liability corporation gives you the ability to choose based on what is best for your business.  Also, unlike an S corporation, the LLC does not have to qualify for pass through tax treatment by meeting certain requirements.

• Lesser Formalities -  The LLC laws do not require that the entity comply with as many formalities as corporations.  A formality is a legal requirement and includes things like shareholder meetings and written approvals.   From a practical perspective, a formality means more issues you need to worry about and more time you need to spend away from your business.  In order to properly maintain your limited liability company and ensure you preserve your limited liability protection, you should engage in some formalities but there as not as many formality requirements as compared to corporations.

• Business Flexibility - The LLC gives Members the flexibility to operate their business in any way they see fit.  Your LLC business can operate like a general partnership, a limited partnership or a corporation.  Your LLC will have an LLC Operating Agreement and this agreement establishes a governing and operational structure for the LLC business.  The Operating Agreement can be amended as needed in the event the LLC business changes or requires a change in its set of operational rules.  

Three Important Stages for a Limited Liability Company

There are three stages to properly forming and maintaining limited liability companies.  As a new business, you should make the investment of time and resources to understand what you need to in each step.  These steps are crucial to proper protections.  Don't risk your liability protection.

• Stage 1 Formation- A limited liability corporation is a creature of state law and so can only be formed by a state agency.  There is a government agency in each state that is responsible for LLC formations.  Each state has its own laws and set of rules of what is required to form one.  It is important that your LLC is properly formed. Defects in formation can cause liability later.  If you would like more information on limited liability company formation, check out our LLC formation page LLC Formation.

• Stage 2 LLC Members and Operating Structure- A newly formed limited liability company has no owners (Members) and no persons appointed to run and manage the business.  It does not matter that you paid the money to create it, you are not automatically an owner.  Every LLC should have an LLC Operating Agreement.  Aside from the document creating your limited liability corporation, your LLC Operating Agreement is the most important document.  The Operating Agreement provides the evidence of who the Members are and how much each of them owns.  The Operating Agreement also establishes a management structure for your limited liability corporation.  If you would like to learn more about LLC Operating Agreements, click here:  LLC Operating Agreements 

• Stage 3- LLC Governance-  After you have done what is necessary to form an LLC business and the initial membership and management structure has been put in place, you and those operating the business must treat your limited liability company in a certain way.  You need to honor the LLC as its own separate entity and complete a few formalities year in and year out.  If you do not know what these governance requirements are, you should learn them and create a simple and automatic system for making sure that you comply with them.  If you would like to learn more about LLC Governance, click here:  LLC Governance