What you need to know about LLCs

by | May 24, 2019 | Business Law |

If you are launching a business, you need to determine the ideal structure for success. You’ve drawn up a business plan, so now it’s time to figure out the best classification for the business.

Several factors go into this decision, such as the number of owners, the industry, management and operational plan, and tax structure. Once you establish those significant factors, you may decide a limited liability corporation or LLC is the best option for you and your business partners.

Executives managing a traditional corporation must comply with a wide range of corporate governance requirements, record keeping and paperwork. An LLC can be flexible and agile compared to other options such as a corporation, S-corporation, general partnership or sole proprietorship.

Features of an LLC

An LLC is a hybrid business structure, so it combines features of a partnership and certain aspects of a corporation.

  • Fewer compliance issues: Forming and launching an LLC is far less complicated and difficult than a traditional corporation. You need to file the articles or organization, which includes the business name, member names and address. In Pennsylvania, you submit the paperwork to the Secretary of State. LLCs afford owners and managers more control and are generally less cumbersome than a standard corporation.
  • Limited liability: The business affords certain debt and liability protections to its members. Creditors can sue the business for past debts, but business laws protect the personal wealth of its members. Any liens, judgements and other liabilities go against the business and not the individual members.
  • Taxation: An LLC is vastly different than a corporation according to the tax laws. The IRS does not tax the business itself; rather, members pay the LLC’s business taxes through their personal income tax.
  • Special allocation: Members can share profits and losses in many different percentages according to their ownership stake in the business. Individual owners enjoy profits while writing off losses, and owners can claim greater losses than their ownership percentage.
  • More agile: An LLC does not require the same corporate powers, duties and safeguards as a corporation. Owners and manager find complying with the business requirements far easier than a corporation.

If you’re searching for the ideal structure for your business, an LLC may be the best option for you and your partners. You need to determine the financing required, record keeping, liability standards and other factors that hinge on which business structure to select. LLCs can be a great solution for many different business partnerships and sectors of the economy.