A limited liability company is a business structure that offers owners certain protections of personal assets. Creating an LLC is much easier than a corporation because it requires significantly less paperwork. You don’t get the same protections as an LLC filing as a sole proprietor.
So what are the advantages of an LLC?
Limited Liability Protection
Besides fraud or illegal activity, an LLC protects its members from legal action, thus safeguarding their assets. If a company gets sued or has accrued debt, the company owners are not responsible for paying. Creditors cannot go after members’ personal property, cash, or other investments.
Pass-Through Taxation
Unlike a corporation, the profits from an LLC go directly to the company’s owners. This then gets reported on their tax returns. Because of this, business income is only taxed once.
Flexibility
An LLC offers flexibility when it comes to ownership and management. With a multi-member business entity, members can manage the company, known as member-managed. The other option available is for the members to appoint a manager to run the company, known as a manager-managed firm.
Tax Options
You have options of how you want to be taxed. You can choose to be taxed as a single-member LLC, a multi-member LLC, a C Corp, or an S Corp. Many will opt to be taxed as an S Corp, but research which option is right for you.
Increased Credibility
An LLC business structure is more formal than a sole proprietorship, so consumers feel more comfortable working with LLCs.
Business Funding
It helps you build your business credit. This makes you a better candidate for business loans and commercial funding. Now that we’ve mentioned some advantages let’s talk about some disadvantages.
Lack of investors
An LLC is not as attractive as a corporation for those looking to invest. Startup Costs- An LLC costs more to form and operate versus a sole proprietorship. However, the costs aren’t as much as creating a corporation.
Unemployment Compensation
As an LLC, owners must pay unemployment compensation.
Record-Keeping
There must be a diligent separation of personal and business accounts. Otherwise, this could create issues down the road. Establishing an LLC has drawbacks, but many businesses benefit from this structure’s protection. You must carefully weigh the pros and cons to decide if this entity is right for your business.
Do You Need an LLC?
Some people think of LLCs as only small businesses, but that’s not true. Without it, you can get sued if you have co-owners and employees, and your assets would be at risk. Having an LLC would help avoid conflict between you and your business partners. Also, it is recommended if your business has significant financial and liability risks. However, you will still be personally liable in a lawsuit for your negligence. Filing under this entity does not protect an owner from losses due to fires, floods, or economic downturns. You’ll need business insurance for that.
First Unions Works With LLCs in Acquiring Business Funding!
First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to 2 million dollars. Call today to learn more about our various financing solutions to help your business grow and become successful.