A limited liability company (LLC) is a formal legal business structure owned by its members. It is the easiest way of structuring your business in order to safeguard your personal assets in case the LLC goes into debt or gets into legal trouble.
Although it is very difficult to ascertain the exact number of LLCs in the U.S., according to a study in the Fordham Journal of Corporate and Financial Law, between the years 2004-2007, there were 4,906,935 new LLCs established in the USA.
It’s important to decide where you will create your LLC, and your home state is generally the best place to do so. Larger corporations or businesses more than usual liability may find it advantageous to contemplate forming in certain states. However, there are very few times when small businesses would benefit from such an arrangement, excluding real estate investors.
Many people also question where it’s the most inexpensive to form an LLC, and the answer remains where the business will be operating. You pay taxes in the state where your income originates and so intriguing tax codes in other states don’t really help your business.
What states seem best-suited to small businesses?
Most small businesses are created in Texas and Florida. This is because the small businesses in these states appear to be happiest with the taxation and state fees. However, starting your LLC in Texas and Florida is only really beneficial if your business will operate there.
Why are LLCs so popular in the U.S.?
LLCs offer unique taxation options, improved credibility, and personal liability protection. a formal business structure (such as an LLC) is best for businesses with a bigger customer base, the possibility of immediate and maintainable profit, more chance of liability or loss, and for whom unique tax options would be advantageous. LLCs are also one of the most popular choices for owners who would benefit from:
1. Being able to reinvest profit back into the business
Small businesses tend not to carry over excessive profit from one year to the next as they need the money to spend on required expenses such as office equipment, software, and even marketing. These are essential for the growth of the business.
This reinvestment is made simple by the process of pass-through taxation. Pass-through taxation simply means that the net income of the business is reflected on the members’ individual tax returns. As such, the business itself isn’t taxed on the company’s net income and taxation only occurs on the individual tax returns. For small businesses who plan on reinvesting their profits into the business, being taxed twice (such as with corporate income) is not a great scenario.
2. A simply and easily maintainable business structure.
LLCs don’t necessitate a lot of paperwork, they don’t have a lot of administrative overhead, and they are simple to create and to sustain. Another very significant benefit is that LLCs are exceedingly adaptable and as such, should the need arise, they have the ability to change into a corporation. This means that an LLC is a brilliant starting point to expand a business because of the ability to grow.
3. General Flexibility
LLCs can be single-member or multi-member and a multi-member LLC can be managed by its own members (member-managed) or it can be managed by a manager decided upon by the members (manager-managed).
An LLC is understood to be a more formal business structure than a sole proprietorship or partnership and having LLC in the name indicates to clients and potential investors that the business is credible.
5. Access to Business Loans
Once the business has been created, the LLC can start building a credit history which aids in accessing loans and lines of credit.
For all you need to know about LLCs, how to start one, and who can help you do so, TRUiC is a great website to visit as they offer awesome insight into creating a business that will be successful.