Setting up a new business can be overwhelming – from choosing the right business structure to finding investors and building a customer base.
Do you want to start a business with minimal compliance?
Then, forming a limited liability company (LLC) can be your best bet. However, there are a few things that you should know about it.
Let’s take a closer look at what forming an LLC brings to the table.
1. LLCs Can Have One or Multiple Members
Do you want to start a new business as an individual? Or, have you found other business partners for your venture?
It’s easy to form an LLC in both cases.
Owners of an LLC are called “members.” You can either form a Single-Member LLC as an individual or a Multi-Member LLC with partners.
Anyone can become a member of an LLC – from individuals to corporations, other LLCs, and even foreign entities. And you can have as many LLC members as you want.
But there are a few exceptions to this rule. Businesses such as banks and insurance companies cannot be members of an LLC.
2. LLCs Offer Taxation Method Flexibility
If you start an LLC, you can choose to report LLC income on your personal tax return as an LLC member or you can get taxed as an S-Corporation.
One of the major advantages of opening an LLC is that it allows pass-through taxation.
Unlike corporations, LLCs don’t have to go through double taxation. The LLC itself files a tax return, but does not pay tax, the profits and losses from the LLC get passed through to the members of the LLC.
3. LLCs Are Not the Ideal Structure to Attract Investors
Incorporating a business is the best-suited option if you want to attract investors. That’s because you can give away shares in the company to your investors as a corporation.
An LLC structure isn’t as good as a corporation for issuing shares and protecting investors from liability. However, if you don’t need foreign investment, LLCs can be an easier way to start a business legally.
You need to file Articles of Organization with the Secretary of the State’s office in the state where you want to open an LLC. At the same time, you also need to file for a federal Employer Identification Number (EIN) to be able to hire employees, earn and report income, and conduct business as an LLC.
There is a lot more to learn about how an LLC functions, how members can share profits, how taxation works, and the pros and cons of opening one.Check out the infographic below by GovDocFiling to learn more about the advantages and disadvantages of forming an LLC.
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.