Why Do I Need an LLC?
Limited liability companies, or LLCs, have become the “go-to” business structure because of their simplicity, flexibility, and tax advantages while providing personal liability protection. An LLC provides legal and financial protection to business owners. LLCs are also great for holding assets; for example, placing a rental property in an LLC will protect the owner’s other assets from liability.
There are major benefits to forming an LLC:
- Liability protection. Generally, the LLC owner or “Member” is not personally liable for any debts or liabilities of the LLC (including liabilities arising out of lawsuits). A LLC will provide owner protection by separating them from the business, thereby shielding an owner’s personal assets from liability. Likewise, the LLC is not liable for any debts collected against the owner so long as it is a multi-member LLC. Unfortunately, single-member LLCs are not afforded this protection, so a creditor of the owner can levy the LLC’s corporate assets. Accordingly, it is important to consult with a business attorney when forming your LLC to help determine which structure is best for you.
- Tax advantages. With a LLC, you can choose to have only one layer of taxation. LLCs can provide owners with pass-through taxation. Simply put, with a single-member LLC, the owner will not have to file a separate tax return for their business. The owner will report any business profits and losses on their personal income tax return. You also have the option to choose other tax structures for your LLC, such as electing S-corporation or even C-corporation status, although you should always consult your tax and accounting advisors prior to making any such election.
- A LLC is simple to form and operate. The administrative burdens that come with other business structures are not required with a LLC. LLCs are also easier and less expensive to maintain.
- LLCs provide flexibility in ownership, management, and taxation. LLCs do not limit the number of members and allow for the governing documents to determine business operations. LLCs can also choose how they want to file taxes.
- Raise capital. The owner of a LLC has the option of bringing in investors who can contribute additional capital, property, or business services.
- Forming a LLC makes your business look and feel more professional and credible to customers.
Although it is less costly to form a LLC than other business entities, costs still exist with forming and maintaining a LLC. In Florida, to form a LLC, Articles of Organization must be filed. Florida also requires all business entities to file an Annual Report each year. Additionally, when forming a LLC, an operating agreement should be drafted by an attorney and adopted by the entity.
A business attorney can provide individualized guidance while you create your LLC. An attorney can help you avoid errors while creating your business entity, which can be costly to fix. Additionally, an attorney can advise you on which tax structure will be best for your business.