If you decide to form a company, you need to pick between several alternatives, including sole-proprietorship, corporation, and partnership. Every option has its advantages and disadvantages. Your choice depends on what is the most suitable to your needs and wishes.
Many individuals choose a limited liability company or LLC because of all the benefits it has. It is a business structure that combines the best of a partnership and a corporation. It is a combination of the pass-through tax advantage of a partnership entity, and limited liability protection of a corporation. When it comes to LLC, owners are called members, as opposed to shareholders and partners, as with other alternatives. Also, there is no limit to the maximum number of members. Owners can be individuals, other LLCs, and corporations.
In the long run, choosing to form this business type is sensible and flexible. Firstly, you need to choose a name and make sure it is unique. It shouldn’t be similar to other businesses, especially not to those in the same area of expertise. After that, you need to prepare the Articles of Organization, and form a structure to help with the management. Additionally, you have to create an Operating Agreement and deal with the tax and legal documentation. If you decide to start an LLC, profits and losses will be passed directly onto the owners. Thanks to this, you will avoid double taxation. It is an advantage this business structure has over a corporation. If you choose to set up an LLC, you need to be familiar with rules and regulations related to its forming in your state.
Benefits of forming an LLC
The primary advantage is a limited liability to its owners. It means they won’t be personally liable for the debts of their business, and other obligations, unless, of course, the member made a personal guarantee. For example, if a company goes bankrupt, and owes money to suppliers, they can’t sue the owners on a personal level. Even if the member has enough money on his bank account to pay off the debts of the LLC, he is not legally obligated to do so.
Another benefit is tax feature. Your limited liability company doesn’t have to pay corporate tax, due to the pass-through capability. However, it passes profits and losses through to its owners, who will report these in their tax return.
Additionally, LLC is highly flexible in profit distribution among the members. Unlike a partnership, where it is done according to the percentage of ownership, or fifty-fifty, a limited liability company offers its owners the possibility to distribute profits however they choose.
Also, members can draw up their contract. Finally, if you decide to establish an LLC, you will have to deal with less paperwork than with other business types. You will have fewer reports and files to submit to the authorities and regulatory bodies. As you can see, choosing to start Delaware LLC has many advantages. Think about all your options before making a final decision regarding the type of the company you want to set up.