Forming as a limited liability company (LLC) provides a business limited liability protection to its owners. This means that when forming an LLC, the owners are no longer liable for the company's debts or liabilities. This can be a huge help when it comes to being sued or wishing to keep your home protected. Although an LLC is similar to that of a corporation, a limited liability company also combines aspects of a partnership or sole proprietorship. Are the benefits of an LLC right for your business?
What are the Advantages of an LLC?
There are many advantages of starting an LLC in Delaware. Here are 4 benefits of creating an LLC in Delaware.
Limited Personal Liability
For any business owner that operates as a sole proprietorship or a partnership, you and your business are legally the same “person.” This means that if you run into business debts, they also become your personal debts. In the event that you make a mistake, or your business partner does something illegal, your personal assets might be at risk. By forming an LLC you will be given limited liability protection that can keep your personal assets safe.
If you choose to, you can be provided privacy protection when forming an LLC. This means that if you wish to be separated from your business and have your name separate, it is possible. All you will need to do is form your LLC with a registered agent. This will tie all correspondence back to that address and company, rather than yourself.
S corporations also enjoy pass-through taxation, but there are many types of ownership restrictions. LLCs on the other hand do not have these restrictions. Their owners may be foreign, and there can be as many owners as they wish.
Another form of flexibility afforded to LLCs is within management. Corporations have a fixed management structure that consists of a board of directors. LLCs do not have to use this formal structure, which affords LLC owners more choices about how they run the business.
Less Paperwork Requirements
Although corporations also offer limited liability, they are also given a number of requirements. When running a smaller business this may be frustrating and unnecessary. Forming as an LLC can help you avoid holding annual shareholder meetings, writing annual reports, and keeping extensive records.
Pass Through Taxation
Forming an LLC also provides a huge tax benefit to its owners. LLCs do not have their own federal tax classification but have the choice to adopt that of sole proprietorships, partnerships, S corporations, or C corporations.
Despite this, the IRS automatically classifies LLCs as either partnerships or sole proprietorships, depending on how many members exist. If you decide to, this means that you can take advantage of “pass-through” taxation. This means that your LLC will not pay any taxes, but rather, the owner will pay income tax on their own tax returns. This facilitates the ability to write off business expenses and avoid double taxation as some corporations must deal with.
Disadvantages of Forming an LLC
Although forming an LLC has many advantages, there are a few disadvantages as well. As compared to a sole proprietorship or partnership, there are extra fees associated with forming an LLC. In Delaware, it costs $90 to register your LLC as paid in a filing fee to the Division of Corporations. There is also a $250 annual tax.
Income splitting is also available when forming an LLC, but it might be subject to payroll or self-employment taxes. There are also transferability restrictions. All members must consent to the sale or joining of a new member, but this can also be a positive as well.
Should You Start an LLC in Delaware?
Most sole proprietors and partnerships would do well starting an LLC. This is because only the assets owned in the name of the LLC are subject to the claims of business creditors. If a lawsuit occurs, the owners will be completely protected. This is also true about the personal assets of the LLC members. Personal assets cannot be claimed to satisfy business debts which is one of the main benefits of an LLC.
How a Business Lawyer Can Help
Forming an LLC is the most complicated part of operation. Working with a business lawyer to help form an LLC can take out the questions that may come up during this process. They can ensure that you are fully in compliance. Essentially a business lawyer will help you with basic zoning compliance, copyright and trademark advice, as well as your formal creation, lawsuits, and liability.