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Why form an LLC?

On Behalf of | Jan 13, 2021 | Business Law

Once of the first decisions you are likely to face when starting a business choosing a business entity. One of the most popular is a limited liability company or LLC.

What exactly is an LLC?

With a limited liability company (LLC), a business owner has limited personal responsibility for the company’s debts and liabilities. Business owners often choose the LLC structure for the protection it provides for their personal assets. It also involves pass-through treatment of income, which can reduce the amount of taxes you pay.

Asset protection

An LLC allows you to protect your personal assets from the results of your business. In the event someone sues the business, any damages paid to another party would come from your business insurance or assets within the business. You would not be personally liable. However, it’s important to note that the LLC does not protect against any illegal actions taken by yourself or your partner.

Tax protection

Another benefit to an LLC comes from how the IRS taxes the business and yourself throughout the year. An LLC is much better compared to that of a C corporation business structure. In a C corporation, the IRS taxes net income, and then the income passed to the owner is once again taxed. This is double taxation. In an LLC, the term “pass-through” is used because there are no corporate federal income taxes that need to be paid when transferring income to the owner(s).

Although an LLC is relatively easy to create, you should still receive an attorney’s aid throughout the process. This will help to diminish the chances of making a costly legal mistake within your forms.