Limited Liability Company Advantages

In our previous post, we examined the Limited Liability Company (LLC) form.

The LLC offers several key advantages over the corporation format:

1. Pass-through taxation

Unlike the C Corporation, an LLC may be taxed as a Partnership, or in some cases as a Sole Proprietorship.

The possibility of double-taxation is eliminated in these LLC formats—since no entity-level taxation takes place.

2. Simplified Formalities

Unlike corporations, LLC’s have much fewer formalities to observe to maintain their integrity.  The reduced paperwork often makes them ideal for small businesses or sole proprietors.

3. Less Restrictions than an S Corporation

The S Corporation has a number of restrictions, including: the number and type of shareholders, as well as a number of accounting and tax restrictions that often work to the disadvantage of the share-holders.  The LLC does not have most of these burdensome restrictions, and may be better than an S Corporation.

Who May not Use an LLC?

Unfortunately, not every business may form an LLC.

Businesses or professions that may only be practiced with a license, certification, or registration authorized under the Moscone-Knox Professional Corporation Act, the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act (including those engaged in Banking, Insurance, and the Trust Company business) generally may not organize as an LLC.

Conclusion

If you are a sole proprietor or small business owner who has not taken any steps to protect your life’s savings, you should consider the LLC format.  For many businesses, the LLC provides flexibility and asset protection with a minimum of hassle.