Understanding the Basics of Limited Liability Companies

Many small businesses are formed as limited liability companies (LLCs). Although corporations are effective legal entities, they require burdensome formalities that corporate managers must comply with and observe.

The LLC structure has grown in popularity not only due to its less burdensome formalities, but also because it offers its owners protection from liability. The simplicity of the LLC makes it ideal for small business owners and start-up companies. This is especially true of businesses with few owners who don’t foresee the business expanding rapidly or the need to raise significant amounts of money. However, the more owners and the larger the business, the more likely a corporation would be the better legal structure.

The LLC provides the benefits of a partnership and a corporation, with protection from liability for the business owners, as well as tax benefits. By making the proper elections with the IRS the entity’s earnings and losses pass through to the owners to be included on their personal tax returns. Avoiding the double taxation of corporations provides a significant monetary benefit.

You may be wondering what the difference is between a S-corporation and a LLC because they have similarities. However, the LLC may offer a small business owner even more advantages than the S-corp because the LLC does not limit the number of shareholders like the S-corp does. Additionally, an owner of the LLC is permitted to have a full participatory role in operating the business.

If you are considering a limited liability company structure for your business, contact us to learn if it is the best choice for you. We will help you weigh the pros and cons, as well as assist you with complying with all the requirements to establish a LLC. Contact an experienced attorney at Nielsen Law Group for help with all your business matters. You can schedule your initial consultation by calling (480) 888-7111 or submitting a web request here.