Why incorporate your small business as an LLC
Why incorporate your small business as an LLC instead of having a simple partnership arrangement?
To attain limited liability and safeguard your personal assets
By setting up an LLC, you will separate yourself from your company. You will be two separate units with separate liability. As a member (owner) of an LLC, you will only have limited liability for debts incurred by the LLC and actions carried out by the company. This means that you don’t have to sell you house and evacuate your family simply because someone decides to sue your company.
A partnership might feel easier to set up, but you need to think about the possible long term consequences of being fully liable instead of using the LLC construction to attain limited liability only. Even sound and reputable enterprises can be sued by disgruntled customers and even companies that are doing an excellent job will be affected by the global economy and shifting market trends these days.
To make it easier to deduct business expenses
By forming an LLC, you will separate your personal economy from that of your company and you will become two separate entities. This will make it much easier to deduct business expenses under U.S. tax law. Forming an LLC instead is therefore a good way of avoiding paying too much in taxes.
To gain more credibility
Many consumers find LLC’s more trustworthy than partnerships, since they view LLC’s as real companies. When you turn your small business into an LLC, you might suddenly find how contacts with creditors, vendors, clients and business associates become much easier than before since you are perceived as representing a serious company.
Why incorporate your small business as an LLC and not as a Corporation?
Because the LLC was created for small businesses
The LLC construction was created to make it possible for small scale businesses to attain the same level of limited liability as C and S Corporations. Since the LLC construction was created to suit small businesses, the amount of mandatory paper work has been kept at a bare minimum. Forming and maintaining an LLC involves much less obligatory paper work than forming and maintaining a C or S Corporation.
Because disproportional allocations of profits and losses are possible in LLC’s
In most types of corporations, disproportional allocation of profits and losses will lead to serous tax ramifications and quite a few constructions will even be illegal. This is not the case for an LLC; disproportional allocation of profits and losses is legal and can be carried out without causing dire tax consequences.
Because you don’t want a partner
In most states, it is impossible for an individual to form a C or S Corporation without involving partners. It is however possible for a solitary natural person to form an LLC.
Because of control
If you form a C or S Corporation, you have to relinquish power to a board of directors. A board of directors is not required for an LLC; you will decide for yourself how the company should be run.
Because you don’t want any shareholders
Since C and S Corporations are owned by shareholders, annual general shareholder meetings are required by law. With an LLC, you don’t have to worry about arranging annual meetings.
Because you don’t hold a U.S. citizenship
In the United States, most business entities can only be formed and maintained by U.S. citizens. The LLC can however be formed and maintained even by a person or persons without U.S. citizenships.
