Protect Your Assets with an LLC
If you are about to start a business, an LLC can offer a unique combination of attractive benefits, providing the limited liability of a corporation combined with the tax breaks and operational flexibility of a partnership.
Though similar to S Corporations, LLCs are a more flexible format that often means less paperwork and a wealth of favorable tax and legal benefits. How do LLCs work? An LLC’s owners are categorized as members (rather than partners or shareholders) who can decide how their entity will be taxed. LLCs can:
- Choose a single-member LLC structure, from which profits and losses from the business are not directly taxed, but instead “passed through” to the personal tax returns of the owner.
- Choose a partnership structure.
- Choose to be taxed as an S or C corporation.
Any of the above LLC structures offers more flexibility and less paperwork than a C or S Corporation, while shielding owners/members from liability. Profit sharing can also less restricted within an LLC, with members distributing profits as they wish, which sometimes can be difficult to accomplish with corporations. Also, there can often be fewer start-up costs.
To form an LLC, some basic steps are necessary, such as choosing a business name, filing Articles of Organization, obtaining licenses and permits, and creating an Operating Agreement that includes member rights and responsibilities, percentage of ownership interests, and, of course, profit and loss allocation. An experienced business attorney can assist with these issues, both in counseling you on how to structure these items as well as drafting the documents necessary to implement your various strategic decisions.
Are there any disadvantages to an LLC? LLCs are typically required to pay self-employment taxes toward Medicare and Social Security. Often, the entire net income of the LLC is subject to these taxes and they are higher than they would be at the corporate level.
For information on forming an LLC or converting your existing business to one, please contact John J. McAneney, Esq., at Timoney Knox LLP.