Many business owners find that developing a limited liability company (LLC) provides them with flexibility. It also provides additional tax benefits for the company. Unlike the corporation structures, a limited liability company or LLC is a type of hybrid legal enterprise providing the limited liability benefits that come with incorporation alongside the tax benefits and operational setup more typical of a partnership.
What is the Main Advantage of an LLC Over a Partnership?
The LLC has one main advantage in comparison to the traditional partnership: the liability of owners (or members) for company debts and/or obligations is limited specifically to their financial investment in the company. The limited liability afforded by the LLC applies in almost all United States jurisdictions.
LLCs that engage in professional services for other companies, groups or individuals requiring a state professional license, i.e. legal services or medical care, etc. may not utilize an LLC. Those companies must either use a corporate form or Limited Liability Partnership(“LLP”).
Another major benefit in addition to the liability advantages that make LLCs the choice of many qualifying companies are the tax benefits. For the purposes of filing your United States federal income taxes, the LLC is not considered a separate entity from its owners. Instead the company, when set up under an LLC structure, is treated as more of a “pass through entity” meaning that the company’s profits simply pass through the business structure to end up with each member of the LLC. This setup means that the LLC business itself isn’t responsible for paying any taxes. Instead each member of the LLC pays taxes on their own personal returns. When the LLC has only one member, the business is treated as a “disregarded entity” for the purposes of filing your federal tax returns.
If you are interested in learning more about the benefits of the LLC or if you would like to discuss other business structures that would best suit your business purposes, get in touch with the southern California business attorneys at The Law Office of Retz & Aldover LLP.