April 24, 2024
    Are you debating whether or not to set up an LLC? It's time to close the debate! Click here for a list of the major benefits of creating an LLC.

    7 Major Benefits of Creating an LLC

    Are you looking to start a business? If so, you want to consider choosing an LLC as your company structure.

    LLC stands for Limited Liability Company and is a great option for small, medium, and large-sized businesses. It’s easy to set up and offers many legal protections for your business.

    But what are the other benefits of creating an LLC? Why should you consider this business structure over others?

    Here are the benefits of creating an LLC:

    1. Fewer Liabilities

    One of the best advantages of an LLC is that you have protection from potential liability. With an LLC, you separate your business assets from your personal assets.

    So if your business got sued, your personal assets are protected from confiscation. Many freelancers or solopreneurs create LLCs to make sure they protect their assets from getting seized.

    2. Fewer Burdens

    Starting a business requires burdensome paperwork. You’ll also have to fill out forms each year which can be a nuisance.

    While you have to fill forms with LLCs, there are fewer forms than with other business structures. You don’t have to file annual reports for meetings or keep detailed records.

    The paperwork varies based on your state. However, you can expect it to be far less burdensome than other types of businesses. This is often the reason why many smaller businesses jump into LLCs.

    3. Owning and Managing

    LLCs have more freedom about owning and managing their business. 

    For example, there are little to no limitations on how many shareholders your company can have. Compare this to S Corporations that have a cap of 100 shareholders.

    You also don’t have to have a fixed management structure for your business. This gives you more flexibility on how you wish to operate your business. At the drop of a hat, you can alter your management structure to suit your needs.

    One obligation you’ll have is to find a registered agent to manage the address and paperwork for your business. It’s easy to change your agent at any time. It’s also simple to transfer or sell your LLC than it is with other business structures.

    4. Easier to Distribute Profits

    With an LLC structure, you have more freedom on how you wish to distribute your company’s profits. In many other business structures, you have to give a set amount to each shareholder.

    For example, you might have two shareholders but might agree that one shareholder will earn more.

    As such, there are also minimal bookkeeping and tax obligations that you have with your LLC. This is also why many small businesses like to choose an LLC for their business structure.

    It gives you the flexibility to also save as much money as you wish. This gives you more freedom to reinvest the money back into your business.

    5. Tax Advantages

    There are many great ways to reduce your tax burden when creating an LLC. The Internal Revenue Service (IRS) doesn’t assign a federal tax classification to an LLC.

    There’s a possibility that your LLC won’t have to pay any federal corporate taxes. Instead, the income and expenses will pass through the owner’s personal income taxes. The owner then pays taxes on any profits made through the LLC.

    C Corporations and S Corporations have more burdensome tax obligations. Saving on tax gives you more freedom to spend your company’s revenue as you see fit.

    6. Competition Among Jurisdictions

    While there are certain rules that all LLCs have to follow, you can choose your advantages among the various jurisdictions.

    For example, one state might have low set-up costs and low annual fees. Others will have a high setup cost and no annual fees. You also aren’t required to incorporate your LLC in the state where you live.

    So, if you live in a jurisdiction with high taxes and high regulations, you can create your LLC in a more favorable jurisdiction. While this competition exists with all business structures, it’s far better when you run an LLC.

    7. Hire or Freelance

    With an LLC, you have more flexibility to hire employees or contractors for your business. There are fewer regulations to deal with hiring through an LLC, but this depends more on your jurisdiction.

    But what if you are a freelancer? An LLC is still one of the best options for freelancers or solopreneurs. You can earn your income through your LLC and separate your bank accounts.

    It’s always easier to hire and manage workers through an LLC than with other business structures. It’s also much easier than doing it as a sole proprietor.

    The Basics of Creating An LLC

    It’s always best to hire a business attorney to advise you on how to go about creating an LLC.

    The first step is to research the best state to form your LLC. You want to first look at which state is most favorable for your type of business. You then want to look at the associated costs.

    Many small business owners might favor LLCs that require low fees. But these might not always be in favorable jurisdictions. Don’t make the mistake of underpaying and not getting value.

    You also want to consider taxation. While federal taxation remains constant, you might face serious tax burdens depending on your state.

    Remember, there are many tax benefits of an LLC. You want to make sure that you keep as much revenue as possible.

    You’ll also have to create an LLC operating agreement. This is a written agreement that outlines how you will run your LLC. This can be altered at a later stage.

    However, you’ll need to finalize your LLC operating agreement before you can create it. Ask your business attorney how to prepare this agreement.

    Start Your Business

    Now you know the process and advantages of creating an LLC, you are ready to start your business today.

    Creating an LLC is a simple process that’ll make your entrepreneurial ventures run more smoothly. Find a great business attorney and ask them to help you find the best jurisdiction for your LLC.

    Prepare your LLC operating agreement, and you’ll be ready to incorporate. Please share this guide with your fellow entrepreneurs. 

    You can also find more great business advice on our website!

    Author

    Leave a Reply