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7 Benefits of Starting an LLC

The primary advantages of an LLC are liability protection, credibility, tax flexibility, and ease of startup.

In the end, forming a limited liability company (LLC) will protect your personal assets while supporting business growth.

LLCs are popular among small business owners because they are affordable and simple to manage.

Let’s explore all the additional benefits of an LLC below.

The 7 Benefits of an LLC

 

Limited liability companies (LLCs) are often the best business structure for small businesses. Here are the main benefits of an LLC:

  1. Personal Liability Protection

The primary benefit of LLCs is the personal liability protection they provide to members. This ensures that an owner’s personal financial assets are protected if the LLC incurs debt or is sued.

Sole proprietorships and general partnerships do not offer this protection. Any business carrying even minimal risk should opt for an LLC.

However, owners may lose liability protection if they engage in actions that “pierce the corporate veil.” This includes mixing personal and business finances or committing fraud.

Related: Charging Order

A related advantage of an LLC is the charging order. If a member faces financial issues, the charging order protects the earnings and ownership stakes of other members. It also allows the indebted member to continue in the business without creditors gaining control.

  1. Tax Options

By default, LLCs are subject to “pass-through taxation,” meaning the LLC’s profits and losses flow through to each member’s individual tax return and are taxed at the owner’s personal tax rate. As a pass-through entity, the LLC avoids federal corporate income tax, unlike corporations, which face double taxation.

LLCs can also elect to be taxed as a C corporation (C corp) or an S corporation (S corp), depending on the specific circumstances, which may offer tax advantages.

  1. Inexpensive to Form

LLCs are typically inexpensive to form and maintain. The main cost associated with forming an LLC is the state filing fee, which varies by state.

Recommended: Visit our LLC Cost guide to learn more about LLC costs in your state.

4. Easy to Form

Compared to C corporations and S corporations, LLCs are much easier to start. You can typically form an LLC on your own without needing an attorney.

If you’re not comfortable handling the process on your own and prefer professional assistance, we’ve compiled a list of the best LLC services.

Starting an LLC is simple. Just choose your state for step-by-step instructions:

  1. Less Paperwork

Corporations require more regulation and paperwork compared to LLCs. LLCs don’t need to have a board of directors, keep meeting minutes, or hold shareholder meetings, saving significant time and money on record-keeping and compliance filing.

Small business owners should opt for a corporation only if they need to attract investors.

  1. Management Flexibility

LLCs have the option to choose between a member-managed or manager-managed structure. In a member-managed LLC, the members are actively involved in running the company. In a manager-managed LLC, management responsibilities are delegated to a manager, who may or may not be a member. This structure allows some members to act as passive investors. LLCs are also not required to have a board of directors, providing more management independence.

  1. Credibility

Forming an LLC boosts your business’s credibility over a sole proprietorship or partnership. Customers and other businesses view an LLC as more professional, signaling that you’re committed to your business’s success.

To learn more about naming your business, read our How to Name a Business guide.

For business name ideas, check out our Business Name Generator. Then, create a logo with our 

LLC Benefits FAQs

LLC members are paid based on the LLC's tax structure. For more details on how to pay yourself from an LLC, read our article "How Do I Pay Myself From My LLC?"

Some benefits of an LLC include personal liability protection, tax flexibility, an easy startup process, reduced compliance paperwork, management flexibility, distribution flexibility, minimal ownership restrictions, charging orders, and the credibility it adds to a business.

LLCs are more beneficial for taxes for some businesses, but not for al

LLCs and sole proprietorships share the same default tax structure. However, LLCs have the option to elect S Corp tax status, which may result in paying fewer taxes than a sole proprietorship, depending on the circumstances.

You don't need an LLC if you're self-employed, but we recommend forming an LLC over a sole proprietorship due to the additional advantages LLCs provide.

An LLC owner must pay Federal Insurance Contributions Act (FICA) self-employment taxes on their owner’s draw or distribution.

LLCs are taxed differently depending on their structure. Taxation varies based on whether you operate a single-member or multi-member LLC, as well as your chosen LLC tax structure.

Pass-through taxation is a tax system that typically applies to sole proprietorships, partnerships, LLCs, and S corps. Under this system, the business’s profits or losses are not taxed at the business level. Instead, they pass through to the owners’ personal tax returns, where they are taxed at each owner’s personal income tax rate.

You should form your LLC in the state where your business is located or primarily conducts business. While some states offer more business-friendly laws and policies, registering in a state where your business isn't based can lead to complications.

You usually don’t need a lawyer to form an LLC. You can easily create an LLC on your own by following our free [How to Form an LLC guide], or you can use an [LLC formation service] to handle the registration for you.

The operating agreement is essential for protecting company assets. It specifies each member's capital contribution to the LLC, which can be in the form of money, services, or property. The agreement also details how these assets will be managed, used, and divided among members, ensuring protection and clarity.

DISCLAIMER

The documents provided are offered "AS IS" and with "ALL FAULTS." We disclaim any warranties, including, but not limited to, warranties of fitness for a particular purpose. These documents may not be suitable for your specific circumstances. By downloading the documents, you acknowledge that this is not legal advice, recommendations, mediation, or counseling in any form and that no attorney-client relationship is established.

 

The operating agreement is vital in protecting company assets. It defines each member's capital contribution to the LLC, which could be in the form of money, services, or property. The agreement outlines how these assets will be managed, used, and divided among members, providing a layer of protection and clarity.

DISCLAIMER

The documents above are provided "AS IS" and with "ALL FAULTS." We disclaim any warranties, including but not limited to warranties of fitness for a particular purpose. The Documents may be inappropriate for your particular circumstances. By downloading the documents, you agree that this is not intended to and does not constitute legal advice, recommendations, mediation, or counseling under any circumstance and that no attorney-client relationship is formed.

 

The operating agreement is vital in protecting company assets. It defines each member's capital contribution to the LLC, which could be in the form of money, services, or property. The agreement outlines how these assets will be managed, used, and divided among members, providing a layer of protection and clarity.

DISCLAIMER

The documents above are provided "AS IS" and with "ALL FAULTS." We disclaim any warranties, including but not limited to warranties of fitness for a particular purpose. The Documents may be inappropriate for your particular circumstances. By downloading the documents, you agree that this is not intended to and does not constitute legal advice, recommendations, mediation, or counseling under any circumstance and that no attorney-client relationship is formed.

 

Empowering individuals by providing accessible, actionable information is key to helping them achieve success. By equipping people with the knowledge and tools they need, we enable informed decision-making and foster personal and professional growth.

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