Limited liability companies are a newer type of business and they are becoming more popular. While other corporate structures have declined since the 1980s, LLCs have experienced an upward trend, according to data from the Internal Revenue Service (IRS).
LLC owners, often called members, pay direct taxes on the LLC’s profits—in other words, A limited liability structure is not taxed as a separate legal entity. LLCs with at least two members have the option to be taxed like partnerships or corporations if they choose. This tax election separates business and personal taxes.
A limited liability company (LLC) is a hybrid business structure that combines the liability protection found in corporations with the ease of partnership. It is technically a type of corporation. Limited liability partnerships may also fall under the LLC umbrella.
Depending on the state, LLCs may have a limited term. In some jurisdictions; An LLC is dissolved when a member leaves. Ultimately, Limited liability companies are a good business structure for a sole proprietor.
Advantages of an LLC
Personal protection. with an LLC; Your personal assets have a level of protection that reduces your liability.
Simple management. LLCs typically have fewer profit-sharing requirements than corporations and require very little recordkeeping. It is a relatively simple and straightforward business structure that works for small/medium and early stage businesses.
Disadvantages of an LLC:
State and Federal Taxes. LLC members are the number of members; Depending on local laws or the LLC’s Articles of Organization, additional forms must be filed for both federal and state taxes. Usually LLC members also pay payroll taxes.
Not available for all businesses. Each state has restrictions on what types of businesses and industries are eligible for LLC status. Banks and insurance companies usually include prohibited businesses. Special rules also apply to foreign LLCs.
There is no easy answer or formula for every new business when choosing a structure. Many online retailers start out as sole proprietorships or partnerships and wait to incorporate, but the exposure to unlimited personal liability can be daunting.