The Benefits of Forming an LLC
Business, companies, LLCs…to many people these are all the same. And while they do have some similarities, there are some advantages of incorporating as, or transferring to, an LLC as opposed to a traditional C-corp.
One huge advantage of incorporating as an LLC is for tax reasons. Florida LLCs allow for what is known as “pass through” taxation. This means that the owner of the LLC has the LLC’s profits or losses reported on his or her personal tax return-not the LLC’s.
This is a huge advantage, because traditionally there is double taxation in a corporation.
Double taxation is where profits the company makes are taxed, and then when the owner makes money from the company, the owner’s income is also taxed. This is avoided with an LLC.
Pass through taxation can also help because in the event you need losses to ease or reduce your tax burden, LLC owners and managers can use the LLCs losses as their own.
As an additional tax advantage, profits earned from an LLC are not considered earned income. This means that you will pay no self-employment tax for the money you earn.
LLCs also provide the traditional legal protections that corporations get. In an LLC, owners or managers of the LLC are safe from lawsuits or judgments that are incurred by the LLC. An owner’s liability for company debts is limited only to whatever amount the owner invested into the LLC.
In many corporate structures, such as with partnerships, there are rules to how much every partner receives in profits. But an LLC is open, and extraordinarily flexible.
You can have as many members of the LLC as you like. You can distribute more profits to some members than you do to others (so long as your LLC’s documents allow for it). You can have varying management structures—whatever positions or officers that you want, can run and operate your company, and the officers of the LLC don’t have to also be managers or owners. You can even opt for your LLC to have only one member.
Of course, this means that your corporate paperwork, such as the LLC operating agreement, are vitally important in an LLC. But generally, an LLC can be tailored however you want it to be to suit your needs.
This flexibility also extends to corporate formalities. Unlike traditional companies, which often require minutes and resolutions, LLCs have no such requirement (although it still may be good practice to have these in place).
The IRS also allows LLCs to choose how they are taxed – either as a traditional company, or as a partnership. Of course, this will be an individual choice you will want to discuss with your tax professional.
The choices you make for your business can have drastic legal consequences. Call the West Palm Beach business litigation lawyers at Pike & Lustig for help and with any business law questions that you may have.