An LLC is a hybrid business structure that combines the simplicity, flexibility and tax advantages of a partnership with the liability protection of a corporation. It can have one or many members, and there is no limit to the number of members (members is the official term for its owners).
The question of business survival rates are off course a different topic altogether, but there are specific benefits that comes with LLC’s - which makes it one of the more successful ways of managing taxes and liabilities.
LLCs were first offered as a business structure option over 40 years ago in Wyoming, and today about 2.4 million U.S. businesses identify themselves as LLCs. In fact LLCs are so popular that they are now the fastest growing business type in the U.S. today, according to the IRS. There are many reasons for this popularity, such as the ease of income generation, and the huge flexibility given in how you can run your business.
Huge tax advantages of LLCs
LLCs could not be better when it comes to advantages on taxation. LLCs don’t actually have their own federal tax classification, so they can adopt the tax status of sole proprietorships, partnerships, S corps or C corps. The IRS classifies the LLC as a partnership or sole proprietorship, depending on whether they have one owner or more. This means LLCs can have the advantage of ‘pass-through’ taxation. This means profits go directly to memgers without being taxed by the government on the company level - rather, profits are taxed on member’s federal income tax returns. This makes filing taxes easier than if your business were taxed on a corporate level. So, you get to keep a lot more money and therefore generate more income, than with a corporation, which has double taxation.
LLCs are cheap and easy to start up
LLCs are hugely popular, especially for newcomers, because of their ease and speed of production. In fact, you don’t even need an attorney, and in some stages the filing fee for an LLC is a mere $100. Once you have registered your LLC with the state, you can make an Operating Agreement to help ground your LLC, get an EIN (Employer ID Number) from the IRS, and get business bank accounts opened. Bank accounts for LLCs are incredibly easy to open. In these very simple, economical steps the LLC is in business. Brett Hamilton, the founder of Simple.be even said that the ‘hardest part of forming an LLC is picking the name, because it’s the one thing that is difficult to change later.’ This further shows how easy it is to handle an LLC, hence giving another reason for their popularity.
LLCs vs Corporations
One main reason why LLcs are hugely popular is in their name - they give members limited liability, which is what they get from corporations, so that owners are provided a separation between personal assets and company assets, which allows for some legal protection.
Apart from this key similarity between the two, LLCs and corporations have many key differences too. With an LLC, there is no limit on the number of owners, there are great tax benefits and no official meetings are required, which are all things corporations do not have. The process of forming a corporation is also a bit longer. On the other hand, LLCs cannot issue stock, which could attract investors, and can’t engage in corporate income-splitting to lower tax liability, which corporations can do.
Interestingly, many women in business are now successful thanks to WOSB certification. As Nagabhushanam “Bobby” Peddi, TRUiC CEO puts it: “The incredible opportunity for women in business today is something to celebrate. I hope that our organization can make a difference in guiding women along the right path with critical information to become successful in business”. Fariba Rahimi, a CEO, Forbes member and philanthropist says: “I see WOSB certification as the ultimate opportunity for women to step up to their rightful place in the world - and hope that this initiative will move way beyond U.S. borders to help women worldwide. TRUiC is one of those organizations that can help make this a reality”.
With LLCs, it can seem like you are essentially getting the best of both worlds - the worlds of partnerships/sole proprietorships and corporations, which are why LLCs are so successful in the U.S. - they are hugely popular. Ultimately, though, before deciding on an LLC it is important to read about the other business structures too, like corporations, because they may be more suited to you.
If you do wish to form an LLC, TRUiC has a detailed step-by-step plan, as well as good advice, on how to do so. Visit their site to read more.
