What type of businesses benefit from an LLC entity?

When you start your business, you have options for the business structure. The most common entity forms include sole proprietorship, partnership, LLC, C-corporation and S-corporation. There are many benefits of forming an LLC, which is why it is a common entity type for many companies in a variety of industries.

Benefits of an LLC

One of the biggest advantages of this business structure is that it provides flexibility with how you file your taxes. Unlike a corporation, you can opt for pass-through taxation, similar to a sole-proprietorship. Rather than taxing the business, any taxes on the income from the business are calculated on the members’ personal income tax return. Members can also choose to be taxed as a traditional partnership or corporation.

LLCs also offer the ability for less paperwork, since you do not have as many required documents as a C-corporation or S-corporation. Finally, LLCs also provide members with limited liability in the case that debts or lawsuits emerge against the business. Personal assets will not be used to pay for any outstanding business debts or lawsuit settlements.

Disadvantages of an LLC

It is important to recognize LLC advantages and disadvantages before selecting your business structure. The main disadvantage is that you might have to pay self-employment taxes, unless you choose to be taxed as a corporation. This might lead to a higher tax rate. LLCs also have a limited life compared to a corporation. Sometimes, the structure leads to confusion about the roles of the members.

Many businesses benefit from forming an LLC, especially those owned by one or more person. Unless you plan to create a business that lasts beyond the founding members, the flexibility and liability offered by an LLC might be the right choice for you.

There are considerations to make when determining the right business structure for your company. You also need to ensure you have your tax ID number. You can start the process for your tax form for LLC here and fill out an online EIN application.