Advantages of an LLC compared to other forms of entities
The LLC was created to suite small businesses
Using the LLC form is often a good idea if you run or plan on running a small business, since the LLC was created with the small-scale business in mind. Large enterprises are also free to be LCC’s, but the advantages of the LLC are less evident for larger enterprises. One big plus for small scale business owner is that mandatory recordkeeping and administration has been reduced to a minimum. An LLC can be set up and run by a single person and the owner of the business will not be forced to set up a board of directors and delegate power to them. With an LLC, there will be no mandatory annual general meetings for shareholders to worry about.
The LLC gives you limited liability
Many new business owners enter into basic partnerships instead of forming an LLC since they think that they have nothing to gain from the LLC construction. The truth is however that if you form an LLC instead of a basic partnership, you can make sure that you – the owner – only have a limited liability for debts acquired and acts carried out by the company. To put it simply: when your LLC gets sued by a disgruntled customer you don’t have to sell your house and evacuate your family to solve the situation. There are exceptions to the limited liability, e.g. if the owner does something illegal, but generally speaking the LLC construction is a great way of safeguarding your personal property. The LLC business construction was created to make it possible for ordinary people to start companies without having to risk everything.
With an LLC, there will be no double taxation
With many types of corporations, avoiding double taxation can be quite tricky unless you enlist the help of a lawyer or similar. If you for instance choose to form a C Corporation, the company will be a separate taxable entity that is required to pay taxes. When you withdraw money form your C Corporation, you can easily end up having to pay tax once again. With an LLC, all the money is passed directly to the owners (members) and avoiding double taxation is therefore simple and straight-forward.
With an LLC, you will have more flexibility when it comes to taxes
As mentioned above, the money earned by an LLC is normally passed directly to the owners. It is however possible for the owners of an LLC to decide that their LLC should be a separate taxpaying entity. If you want your company to pay the taxes instead of you, simply fill out IRS Form 8832.
In an LLC, disproportional allocations are allowed
In most types of corporative entities, profits and losses must always be allocated proportionally to ownership interests. In situations where a disproportional allocation is allowed, it will still lead to serious tax ramifications in many cases. The LLC is different, because with this type of company disproportional allocation of profit and loss are perfectly legal and can even be carried out without leading to severe tax ramifications.
An LLC can be formed even by foreign citizens
You do not have to be a U.S. citizen to form or become a member of an LLC in the United States. This distinguishes the LLC from many other forms of corporations.
