Why set up an LLC?
To protect your private assets by limiting your personal liability
By setting up a LLC instead of using a traditional partnership construction, you can safeguard your personal assets. With an LLC, you don’t have to sell your home and evacuate your family just because a disgruntled customer decides to sue your company. You and the LLC will be two separate entities with separate economies. The term LLC stands for “Limited Liability Company” and this is exactly what it does – it limits you personal liability. As the owner (member) of an LLC, you only have limited responsibility for debts acquired by the LLC and acts carried out by the company.
Because it is easier and less expensive than forming an C or S corporation
Many prospective business owners decide to use a simple partnership construction since they believe that setting up a LLC is expensive and complicated, but this is very far from the truth. The LLC construction was created with the small scale business owner in mind and setting up an LLC is much easier than setting up a C or S Corporation. Only a minimal amount of paper work is required to form an LLC and the quantity of mandatory annual paper work is also very limited.
Because you can do it on your own
It is possible to form an LLC with you as the only member. This makes an LLC an excellent solution for many small-scale business owners. With an LLC, you never have to worry about setting up a board of directors since there are no shareholders. If you decide to let other people be a part of your LLC, they will be members, not shareholder. This means that there will be no mandatory annual shareholder meetings to arrange.
To avoid double-taxation
Forming an LLC is a practical way of avoiding double-taxation. In an LLC, both profits and losses are passed on directly the members (owners) and the company does not pay any tax since all tax is paid by the members. If you have a C Corporation you risk finding yourself in a situation where you are forced to pay tax twice on the same money. First, the corporation is taxed on its earnings, and then you are taxed when you withdraw money from the corporation. Large corporations normally hire attorneys that will help them avoid this problem, but hiring an attorney can be a big cost for a small-scale business.
To gain tax flexibility
The LLC construction is very flexible when it comes to taxation. If you one day decide that you prefer to be taxed as a C Corporation, e.g. that the company will be responsible for paying the taxes instead of the members, you only have to file a form with the IRS.
Because it doesn’t require a U.S. citizenship
Many business constructions can only be formed by U.S. citizens. The LLC is open for non-citizens as well and is therefore a great alternative for anyone without a U.S. citizenship. With an LLC, you don’t have to worry about the citizenship status of any of the members of your LLC.
