Why would you need to open a limited liability company and what does that mean for your business?
You may be wondering if you need to open a limited liability company (LLC) or a corporation. They are two different entities, both having their own benefits. Let’s take a closer look at some of the advantages of an LLC.A LLC offers you protection in that the company’s owners are shielded from the company’s financial liability. What that means is that if you should get sued, the plaintiff cannot come after the company’s owner’s personal assets such as their home and retirement savings. Clearly, this can offer you great peace of mind.
Another advantage is that of flexibility. As the business owner, you can manage the LLC yourself or you can hire someone to manage it for you. Another point of flexibility is that the owner can decide how they would like to be taxed; they can be taxed as a sole proprietorship, a partnership, an S corporation, or a C corporation.
No one appreciates excessive paperwork and LLC’s typically have less administrative requirements than corporations. Also, the compliance requirements are less stringent than that of a corporation. There is a term called pass-through taxation, which essentially means that the LLC doesn’t pay federal income tax. Instead, the profits and losses flow through the owner, or individual members, who report income on their personal tax returns. This can help to avoid being taxed twice, which can happen with C corporations.
This list isn’t meant to be exhaustive. I’m sure there are many more advantages, and maybe even a few disadvantages, to opening an LLC. We here at PFSS can help guide you on what type of entity you should open and whether an LLC is the best option for your situation. Next time, let’s take a closer look at the benefits of opening a corporation instead.