Limited Liability of an LLC
Like a corporation, owners of an LLC enjoy limited liability, which
protects their personal assets from judgments and other obligations of the
entity. You can download
a free business check list at CorpNet.
When the LLC incurs debts or liabilities, the creditors are limited to the
assets of the LLC. In the event the assets are insufficient to cover the debts
of the business, creditors may not generally collect additional amounts from
the members.
With a Sole Proprietor business structure, the owner of the business is
personally liable for all the obligations of the business.
Fewer Formalities Required
A Limited Liability Company usually requires fewer formalities than a
corporation, such as regular meetings of a board of directors and an annual
meeting of shareholders, like an S or C-Corporation.
However and LLC does require proper filing of Articles of Organization with
the Secretary of State to be formed and the members of the LLC are required to
enter into an Operating Agreement that governs how the LLC will be operated.
Pass-Through Tax Treatment
LLCs are treated as “pass through” entities under the Internal Revenue Code
unless the members elect to have it taxed like a corporation.
This means that the owners report profits and losses only on their own
personal income tax forms and no separate entity level filing is required.
If a C-Corporation earns a profit, that profit is taxed. If those profits
are then distributed to its shareholders, the shareholders pay income taxes on
those dividends. This is known as the “double tax” and, while there are ways
for small businesses to legitimately avoid the double tax, LLCs that have pass-through
tax treatment are not subject to this type of tax treatment.
You can form a LLC within minutes, online for $49, plus state filing fees.
