Key Advantages of Limited Liability Companies (LLC)

Limited liability companies (LLCs) offer business owners several advantages over sole proprietorships, partnerships and in some cases S and C corporations. Business operators who take advantage of LLC business formation can realize significant financial benefits and can also use living trusts to facilitate exchanging limited liability company ownership more easily relative to using a will. LLCs offer almost the same asset protection enjoyed by corporate entities, are less expensive to maintain and require less work to remain in compliance.

LLC advantages

LLCs and Financial Advantages

Entrepreneurs can structure a limited liability company in several ways. These four structures include a:
• Single Member LLC
• LLC filing as a partnership
• LLC filing as a C corporation
• LLC filing as a S corporation

Limited liability companies offer substantial tax savings compared to schedule S and C corporations. Unlike corporations, limited liability company operators can use the cash accounting method. With this method, an entity does not have to report income until it actually collects receivables. S and C corporations must report accounts receivables, and pay taxes on those receivables, whenever the company encounters an expense that will generate profit. Because of this, corporations must record earnings before they actually realize income from the transaction.

Normally, limited liability company taxes only apply to profits earned on personal income taxes. Most states do not require limited liability companies to pay taxes twice, as with schedule S or C corporations; typically, LLC owners only pay taxes once on the profits that pass through the company. Corporate organizations must pay taxes on profits, then again when they issue dividend payments. This single tax benefit can also apply to LLCs structured as a partnership. Business losses also factor into the LLC profit equation, further increasing tax savings.

Limited Liability Companies and Living Trusts

LLC operators can place their ownership interests in living trusts in certain states. A living trust can help ensure that a business does not suffer from unnecessary interruptions in the event the principal passes away or is unable to manage the business. In the event the principal cannot operate their company, limited liability company ownership – enveloped in a trust – can pass directly to a designated beneficiary.

Living trusts are especially beneficial if the business maintains property in several states. When an LLC owns property in different states, and the owner passes away, the estate must settle probate in each state – which is a complex, expensive and lengthy process. A living trust can circumvent these proceedings, allowing the owner’s heirs to take proprietorship immediately, while avoiding extensive legal proceedings.

Overall, a living trust can save expenses and time when a business owner transfers business assets through a will. The living trust also helps to clarify future business interests and prevents any contests as to who is eligible to take over a limited liability company and its profits. As for tax savings, a living trust is normally only advantageous if the business owner is passing interest to a spouse.

LLCs and Legal Benefits

Forming an LLC is a way for sole proprietors and partners to protect their personal assets from liability. For this protection, the interested parties must form the limited liability company before litigation arises. An LLC is an entity unto itself, and any debts or liens placed on the company will not attach to the registered owners’ assets in most instances. The only assets that normally remain at risk are those owned by the LLC. Because a limited liability company is an entity unto itself, it will continue to exist beyond the owners’ life span or investment in the company just as if it was a corporation.

A limited liability company also offers more operational flexibility compared to a corporation. For corporations, the government requires entrepreneurs to maintain a specific organizational structure. The government does not require limited liability companies to follow strict reporting guidelines such as those imposed on full-fledged corporations. LLC operators do not have to conduct regular meetings and keep meeting records as with S and C corporations. LLC operators are free to run their organization as they choose unless the company founders set forth specific guidelines to the contrary in the articles of incorporation.

In Summary

Sole proprietors and business partners can protect their personal assets and realize notable financial savings by forming a limited liability company. They can also save resources that would otherwise go toward maintaining the corporate status when operating as an S or C corporation. Entrepreneurs can use living trusts to make it easier to transfer LLC ownership to their intended parties. These many benefits offer corporate level protections with less expense and workload.

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