There are many different ways of forming a company, including as a sole proprietorship, a partnership, or a corporation. Each has its own advantages and disadvantages. One major benefit of a sole proprietorship or partnership is the flexibility in tax reporting of business income and expenses. Business profits and losses are passed through to the owners/partners who are then taxed at their individual income tax rates. The biggest disadvantage of either a sole proprietorship or a general partnership is that the owners/partners are personally liable for all business debts and claims. Incorporation, on the other hand, gives limited liability protection to its owners but does not have the tax flexibility of a sole proprietorship or partnership.
Advantages of the LLC Entity
- Owners have limited liability from business debts
- Can include more than 35 shareholders
- LLC is not a separate taxable entity, which removes the threat of double taxation
- Owners need not be United States citizens
- Limited personal liability: pass through income/loss to your personal income
LIMITED LIABILITY COMPANY (LLC)
The LLC is a relatively new type of hybrid business structure that is available in most states and must be formed on a state-by-state basis, i.e. form a California LLC if doing business in California. It is designed to provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. The process of forming LLC partnerships is more complex and formal than forming general partnerships.
The owners are called members, and the duration of the LLC is usually determined when the organization papers are filed. The life of an LLC can be perpetual, or shorter if determined by the members. The time limit can be continued if desired by a vote of the members at the time of expiration.
If you would like further information on how to form an LLC, please visit our Learning Center. To form a New York, Texas, or California LLC with the assistance of Incorporate Fast, please call us at (866) 999-8200.
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