New York(Washington Insider Magazine) -An LLC is a limited liability company. It is a U.S. business structure that offers simplicity, flexibility, and tax advantages during a partnership. This system allows the business owner to get the liability protection of a corporation. The owners of LLCs are called members.
What Is An LLC?
An LLC can consist of many “members,”. The members of an LLC are the official term for its owners. Members are individuals or businesses that have partnered up with each other. There is no limit when it comes to the number of members in an LLC. An LLC can have as many members as it wishes to have. With an LLC structure, then members’ can protect their assets from the business’s creditors. Millions of U.S. businesses work on the structure of the LLC.
Pros Of LLC
If you structure your business as an LLC, then you can enjoy a lot of benefits. Here are some of the advantages that you are expected to get following this business structure:
1.Limited Liability
Members of an LLC are not liable for the actions of the company. The personal assets of the members that include homes, cars, bank accounts, and investments can be protected from creditors that are seeking to collect from the business. You can keep your personal and business funds separate from each other without any worries.
2. Federal Taxation On Profits
An LLC is a pass-through entity, which means that the profits go directly to its members and don’t get taxed by the government. Instead of that, the members have to pay tax on the profits that they get on their federal income tax returns.
If your business loses money or faces any losses, then you and the other members can share the burden and can build the business once again. This benefit helps you to lower the tax burdens.
3. Flexibility In Business
Members can manage an LLC and can make their business decisions by consulting each other. The decision-making becomes easy as the members are allowed to make decisions that favor their business in all ways.
Professional managers that are members of the outsiders manage to handle the business without any problems. Your business is in your control and you have the right to hire people that have the experience to handle your business.
4. Easy Startup
The best thing about a business with an LLC structure is that it is easy to set up. Running the business is also easy as you don’t need to create complicated Initial paperwork and don’t have to pay many fees. The documentation and fees for an LLC are relatively light.
There can be a wide variation in different states and their fee charges for an LLC business. The process of setting up an LLC is easy and the owners can handle the issue without any special expertise. You can also consult a lawyer if you face any issues in setting up your business. The new requirements for an LLC business usually come on an annual basis.
Cons Of An LLC
If you are considering registering your business as an LLC, then you should consider the cons of this business structure:
1.Limited Liability Comes With Limits
A judge can rule that your LLC structure is not able to your assets. This action is called “piercing the corporate veil,”. This can put you at risk. If you are unable to separate personal and business transactions, then your business could end up getting in a loss. You might also get blamed for running your business fraudulently and you could be blamed for causing losses for others.
2. Self-Employment Tax
The IRS considers LLCs as partnerships for tax purposes. This rule is not allied if the members opt to be taxed under the setup of a corporation. If your LLC is taxed in a partnership under such situations your government considers members of an LLC as self-employed.
This means that these members are personally responsible and have to pay for Social Security and Medicare taxes. These are collectively known as self-employment taxes and are based on the total net earnings of the business.
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3. Member Turn Over Consequences
In many states, if an LLC member leaves the company due to the business getting bankrupt the LLC must be dissolved. The remaining members will be responsible for the legal and financial obligations that are required to terminate the business. These members are allowed to continue with the business, but they have to start a whole new LLC from scratch.