What Are the Benefits of Having an LLC?
In the past, there was very little middle ground for those wanting to start a business. Either those in business were in sole proprietorships or partnerships, or they were in corporations, with very little in between. The sole proprietorship or partnership was the easiest, but subjected the owner or owners to liability issues. The corporation was often confusing and too much trouble for a small business to consider. That is why limited liability companies (LLCs) were formed. These offered a middle ground and substantial benefits over both extremes.
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Limited Liability
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As the name would suggest, this is the major benefit of a limited liability company. It enables the individual to protect personal assets if a contractual obligation or some other issue causes a lawsuit. Though some type of liability insurance should still be purchased, the protections offered can be much more limited in scope than insurance that would have to protect both the business and personal assets.
Easier Paperwork
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While there is more paperwork required with an LLC than in sole proprietorship or partnership, it takes substantially less paperwork compared with a traditional corporation. This is not only true when setting up the corporation, but also in the area of taxes. The profits and losses pass through the corporation to the personal income taxes of the LLC members.
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Double Taxation Avoided
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With corporations, there is a phenomenon known as double taxation. This happens when the federal government requires taxes to be paid by the corporation, then imposes a personal income tax on those who receive disbursements from the corporation. In other words, before your money gets to you, it is taxed twice. Because LLCs are not required to file taxes, there is no taxation until the money reaches you.
Health Insurance
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The managing partner of an LLC can deduct 100 percent of her health insurance premium from the taxes. This will reduce the overall tax liability an individual faces at the end of the year and is something that is not offered in many other forms of business. It also serves as encouragement for the managing partner to have health insurance.
Simplified Record Keeping
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Corporations are required to have annual filings and hold annual meetings. No such requirements exist for LLCs. This offers the LLC members more flexibility and means more resources are available for doing business, rather than spending those resources to meet government regulatory requirements.
Other Benefits
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Though it is hard to quantify, filing as an LLC provides some measure of credibility for a company. It is easier to earn trust if the customer understands the company has filed with the state. Further, there are fewer ownership restrictions. For example, some types of companies are not allowed to have overseas partners. This is not the case with LLCs.
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