Why Form an LLC?

Why Form an LLC?

An LLC is a Limited Liability Corporation. As the name implies, forming an LLC results in a limited liability for the members. When a corporation is formed, a member opens himself up to double taxation (the government taxes the corporation, as well as the dividends given to the shareholders), where as an LLC only requires one form of taxation. The two options are pass-through taxation or taxation as a separate entity. Pass-through taxation is often the better choice ‘š the company does not face taxes, but the shareholders do.

Like a corporation, the members of an LLC are not liable for the LLC’s debts, obligations, liabilities, or the other members of the LLC. You only risk what you put in. However, if a business profits, an LLC’s members are able to decide on the division of profits without necessarily considering a member’s investment. However, LLCs are still subject to tax rules and state law requirements, which can limit the division of profits and losses.

As for management, the members of the LLC determine how responsibilities are meted out. An LLC does not limit the number of members forming the company, but some states have different laws regarding membership.

To form an LLC, the business must meet state law requirements. Some professionals (such as doctors and lawyers) may need professional LLCs instead of a standard LLC. Ideally, a competent attorney should be consulted to avoid future legal problems.

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