What Are The Advantages Of Becoming An LLC?
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With many companies closing shop there is an increasing trend of people starting their own businesses after previously holding regular jobs. If you plan to start your own venture anytime soon or have already started one, it may be worthwhile for you to know the advantages of an LLC.
LLC, or Limited Liability Company, is a type of business organization which is becoming very popular because of the benefits that it provides the owners.
Setting up your organization from the onset as an LLC is easier than setting it up as a sole proprietor or other types of business. It is even feasible for you to convert your current business into an LLC, depending on how it is set-up.
If you started your business as a sole proprietor, most probably you only had to file a DBA (doing business as) form in your municipality. You may not have been required to register your business with the state. An LLC is one of the forms you can choose when registering your business.
There are pros and cons to starting your business as an LLC, but the biggest benefit would be that it provides liability protection to the owners of the company. An LLC may borrow money for example, yet the owners would not be held liable for it in the event the business fails. If in case the company would be sued for some reason, the owners may not be held legally responsible.
Among the advantages is pass-through taxation, which means that owners can still file income or loss on there individual income tax returns. Other advantages are increased transparency with employees, creditors and other concerned parties; fewer restrictions or formalities when compared to corporations; and an adaptable management. There are no business taxes, no board meetings and no board of directors, which corporations are required to have.
The disadvantages of starting an LLC lie in the legalities and fees. In setting up an LLC, you have to file and pay the Articles of Organization in the state where you have registered your company. Some states require an annual report or franchise fee as well. Sole proprietorships and general partnerships are exempt from paying these fees however while small businesses are only charged a minimal amount. It is also difficult to transfer ownership in an LLC because there are no stocks to be sold and any major changes must be unconditionally approved by all the owners.
While you may set up an LLC with only one owner in some states, others will require at least two partners. Another disadvantage is that owners are required to pay self-employment taxes, which they are bound to do anyway if it's their only source of income.
Because of the numerous legal requirements, many people who wish to start an LLC seek the services of attorneys to handle the paperwork. For those who are confident enough of navigating through the entire process on their own, you may also download the necessary forms from the internet. Just make sure that you use the forms which are appropriate for your state and look into some special requirements as applicable if you intend to do the job on your own.
Article Source: Articlelogy.com
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