What Are the Benefits of Limited Liability?
A limited liability company, LLC, is a structure that is very flexible. It amalgamates the features of both a partnership as well as large company. The governance of these companies is very similar to a S-corporation. These types of companies are frequently found in the United States and are common in both the profit-making as well as the nonprofit sectors. There are several benefits to using a LLC.
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Limited Liability of Members
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The owners of a limited liability company are referred to as members and not shareholders. The liability of these members is always limited. Their personal assets can never be used to cover the debts of the company. This is a feature acquired from a corporate structure where the LLC has a corporate identity separate and distinct from its members.
Pass Through Taxation
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The problem of double taxation is annulled with a limited liability company. The profits the company makes are passed onto the members who then individually file for taxes. Only the members are taxed on the profits, not the LLC. This case is similar with both partnerships and sole proprietorships. Here too, the corporate structure is not taxed.
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Profit Sharing Ratio
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The LLC can fix its profit sharing ratio as it pleases. There is no rule to distribute equal profits among all members. The ratio may be decided on the amount of money the members have invested in the company or on their role in the conduct of the business.
Ease of Formation
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The structure is very easy to form and maintain. Once the members get together and decide to form a company, they are only required to submit a few documents to the government. These include copies of the licenses required for the business, the articles of association, the memorandum of association and employment identification numbers.
Professional Limited Liability Company
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This corporate structure is mainly preferred by professionals. Professionals with similar aims and inclinations get together and decide to conduct their business through this form. Professionals like doctors, artists, lawyers and tax consultants favor this structure immensely.
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