LLC information: An Overview of a LLC
 An LLC is a Limited Liability Company.
Many people wrongly refer to it as a Limited Liability Corporation, but
an LLC is not a corporation. As you read more LLC information you will
quickly see that there are similarities to several different forms of
business that make it unique.
An LLC is a sort of hybrid business form that
borrows parts of sole proprietor businesses, and also some from
corporations. This form offers some protections and advantages that
make it ideal for some businesses.
Taxes
One bit of LLC information you need to look into
is how taxes are handled for an LLC. Corporation have the disadvantage
that their income is taxed twice. Taxes are paid by the corporation,
and then the money that is distributed to the owners is taxed again as
personal income.
With an LLC the money that the company earns
is passed through to the owners of the company. It is then claimed on
the owner's personal income tax filings. They will pay the taxes at the
rate of a self-employed person.
You will need to check with your local Secretary of State for any LLC information that is different for your individual state.
Who Can Be an Owner
Corporations have regulations regarding who can be
an owner of the company. There are limits to how many owners are
allowed, and there are also residency restrictions on ownership. There
aren't any restrictions of who can be an owner of an LLC. In fact, the
owner doesn't even have to be a person.
The rules for LLCs
even allow a corporation to be an owner of an LLC. This makes it
possible for members of the LLC to take part in fringe benefits, such
as health care, that are not available to individuals. Having a
corporate owner also helps to provide an extra layer of protection from
personal liability.
How Owners Get Paid
Another important piece of information is the issue
of how owners get paid. Money brought into the LLC is not considered to
be earned income for the owners. The owner of an LLC either receives a
guaranteed payment, or gets a distribution from the LLC's profits.
When owners want to get paid, they simply write themselves a check from
the company for the amount they are due. (That is assuming that there
is enough money to cover the check.) That money is then claimed by the
individual on their tax return
Disadvantages
 While
there are quite a few advantages to forming an LLC, there are some
disadvantages as well. There are reasons that this may not be the best
business form for you to pursue.
One disadvantage is how
LLCs are perceived by others, especially by financial institutions. In
general, financial institutions such as banks have a higher regard for
corporations. Because of the regulations that the government provides,
banks feel more secure dealing with a corporation than they do dealing
with an LLC.
Another piece of information that tips the
scales in favor of the corporation is the "corporate veil" that a
corporation provides for its owners. The corporate veil is a legal
protection that shields the owners from legal liability of the company.
What that means is that if someone decides to sue the corporation, they
will not be allowed to sue the individual owners. Unless an owner did
something that was legally negligent, that owner is safe from lawsuits
against the company.
LLCs do provide some liability
protection for their owners, but that is more geared toward financial
liability for the debts of the company. It also provides individual
partners protection against a lawsuit brought against one of the other
partners.
The more information you can gather about LLCs,
the better a decision you can make when choosing which form of business
you want to use. There are advantages and disadvantages to each, so you
need to weigh all of your options.
More LLC information.
Points to Keep in Mind
- LLCs do not offer the same corporate veil against liabilities that you get with a corporation.
- LLC owners are not paid as employees; they receive a distribution of company profits.
- LLC owners are not subject to the same double taxation that corporation owners face.
- LLCs borrow elements of both corporations and sole proprietorships in how they are structured.
- There are regulations limiting who can be an owner of a corporation.
See Also:
Corporation and LLC Tips: Original articles on the ins and outs of setting up a corporation and LLC.
How to Incorporate a Business:
If you are looking for information on how to incorporate a business,
this page will help you get started and identify key steps you need to
take.
|
