December 10, 2021 Last updated December 10th, 2021 869 Reads share

The Main Benefits Of An LLC Business Structure Every Entrepreneur Should Know

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Remember back when you were at school, and your friends were all talking about what they wanted to do with their lives? A doctor here, a fireman there, a ballet dancer somewhere in the middle. But one of the most common threads had always been working for someone else. And then you come in and think, “Hey, why should I give someone else precious hours of my life when I could do my own thing?”

The mind of a true entrepreneur.

Seems like a dream come true, right? Your own hours, no one to hold you accountable, do what you like when you like, and for as long you like. Now, if you’re reading this, you’ve probably done most of the grunt work already and are stuck at the one thing most starting entrepreneurs find daunting: the dilemma of the dreaded ‘legal entity.’ LLC? Sole proprietorship? C- or S-Corp? And if you’ve really done your homework, you’re probably leaning more towards an LLC, which isn’t a bad start at all.

And here’s why.

 

 

Less Liability

As the name suggests, a Limited Liability Company is one where your personal assets are protected against any lawsuits your future company might face. What does that mean? If your business tanks or you’re sued for whatever reason, it’s your LLC that takes the blow, and not you. That means whatever problems may arise, you can rest assured that the wife and kids won’t suffer the consequences. This alone has been reason enough for many starting entrepreneurs to rush into forming an LLC instead of, say, a sole proprietorship, where everything you own is pretty much on the line. 

 

It’s Just So Easy

Creating an LLC is almost as simple as brushing your teeth. Governments have made the process incredibly easy, which is exactly why entrepreneurs are leaning towards this form of legal entity than any other. For starters, find out how to start an LLC is pretty much like learning how to make a tuna sandwich. There’s just so much information out there! Second, you can set up your LLC with a registered agent for as little as $100 annually, from the comfort of your home. And you can have your EIN within days by simply registering online. 

Another benefit is that you’re not limited to where you open your LLC. You can basically do it in any state you desire. The one thing you need to keep in mind, though, is that if, for example, your LLC is in Delaware and you’re operating in New York City, you still have to pay NY State and city taxes.

 

Note: If you’re a foreigner applying for an LLC in the US, the process of applying through a registered agent is pretty much the same, with the difference that you need to fax your information to the IRS and wait two to three months for your EIN. In this case, make sure you sign up for a mail opening and scanning service with your registered agent so your information can be emailed to you.

 

Avoid Double Taxation

Now, here’s a benefit that should really be at the top of your “pros” list. When corporations are taxed, they usually face the burden of “double taxation.” What this basically means is that the corporation is taxed as income, and the shareholders have to pay taxes on the dividends. With this business structure, owners reap in terms of benefits is the “pass-through” treatment, which means profits are taxed only once on your individual income tax return. And don’t forget the 20% pass-through tax deduction. Seriously, isn’t that reason enough?

Flexibility

A very important benefit to an LLC is the sheer amount of flexibility owners enjoy. For starters, there is no limit to the number of owners, or who the owners are. Members can be partners, corporations, a trust; sky’s the limit. And when it comes to how many members there are, you can have enough to form your own football team (although that might not always be the best option from a business perspective…but that’s your call, really).

Another benefit to flexibility is the way profits are shared. With partnerships, for example, profits are pretty much split equally. With corporations, many factors come into play, like proportion of ownership by stockholders and how the dividends are paid. With an LLC, it’s your operating agreement that dictates how your hard-earned money gets divided. And who determines that operating agreement? That’s right, you.

 

Of course, when it comes to starting your own business, most schools agree on things like finding your “thing” and writing your business plan, doing the market research and finding funding. While all that is true and important (basically, Business 101), we sometimes overlook the details of forming your legal entity. Kind of reminds you of how schools forget to teach us about paying taxes. However, with the right information that is readily at your fingertips, and the eagerness to ultimately choose what’s best for your business, you won’t have to worry about that at all. And if an LLC seems like the right option for you, then hopefully the pros we’ve listed here can really bring that decision home.

 

Ana Young

Ana Young

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