What are the benefits of forming a Limited Liability Corporation (LLC)?
LLC’s offer small businesses the benefits of personal asset protection as well as simplicity. When compared to sole proprietorships and general partnerships, LLCs can protect the assets of a business in the event of the business being sued. Unlike corporations, LLCs are both relatively easy to form and maintain and are not subject to double taxation. Another benefit is that LLC’s gives the option of choosing the S-Corporation tax designation, which is simpler to maintain when compared to the standard C-Corporation
It’s important to understand what the benefits are for forming an LLC before deciding to start one. The advantages are many and they will be explained below.
What is meant by the protection of personal assets?
With the formation of an LLC, there is the benefit of not benefit of not being held personally responsible for the debts or lawsuits incurred by the LLC. This is only if there is no sign of any fraud or criminal behaviour. Yes, with the formation of an LLC can protect the assets, but as a business it is still encouraged to have General Liability Insurance as well.
General Liability Insurance gives small businesses protection against several risks, including unexpected costs from lawsuits, unfortunate accidents, or other actions that might be taken against the business. With this insurance, a business is covered in the event of anyone being injured while on business property, as well as covering damages caused by the business or its employees. The insurance also covers legal defence as well as with the costs associated with the loss if the business is found guilty. With the aid of this cover a business is given peace of mind for the following:
- In the event of sustaining a bodily injury.
- In the event of property damage.
- Any medical payments/expenses incurred.
- Legal defences and judgements.
- As a result of advertising liabilities injuries.
Businesses that offer professional services, including but not limited to, accounting, legal advice, web design, etc., should consider investing in Professional Liability Insurance. This is also referred to as Errors and Omissions coverage (E&O). The services are offered to both small and large businesses and protects these businesses against any claims relating to inaccuracy, negligence or undelivered work. Considering that these such claims can cost businesses plenty of money, this cover helps with the associated disputes and costs.
Businesses need to remain mindful that having insurance does not necessarily mean that they will be covered for all risks that the business might face down the line, therefore knowing the options and cover can be beneficial. Some of the insurances that businesses should familiarize with are: There are various options, including:
- Worker compensation.
- Commercial Property Insurance.
- Commercial Auto Insurance.
What are the tax benefits?
Considering that the profits of an LLC goes directly to the owners, the owners are therefore responsible for reporting their share of the profits when submitting their individual tax returns. This is why an LLC’s profits are only taxed once, known as pass-through taxation. Unlike C-Corporations, which are subjected to double taxation, as the profits are taxed before distribution as well as when the owners report their share of profits on their individual tax returns.
What are the benefits regarding the process?
Forming and maintaining an LLC is rather easy as there is little paperwork involved. When compared to C-Corporations and S-Corporations, LLC’s do not require that one assign formal officer roles, or hold annual meetings, or even record company minutes and resolutions.
What benefits does the flexibility of the process entail?
With the formation of an LLC there are only a few restrictions that one needs to take into account regarding the ownership and management of the LLC:
- There is the option of choosing for the LLC to be either a single-member or a multi-member.
- When LLC’s are managed by the multi-members, this is referred to as member-managed.
- There is also the option of electing a manager, who will be responsible for managing the multi-manager, which is known as a manager-managed LLC.
Another benefit is that LLCs have the option to be taxed as either a C-Corporation or an S-Corporation.
Yes, the benefits are not limited to pass-through taxation or the flexibility of how easy it is to form an LLC. Ready to take the next step, click here.