By Fernando Berrocal
So, what can you accomplish with a Limited Liability Company (LLC)? According to an expert that shares his opinion on LLCs as a business plan, there are several advantages to forming an LLC rather than operating as a sole proprietorship.
In many different types of circumstances, forming an LLC is the ideal option, related to this, our expert mentions the following:
“The main pros, in my opinion, are protecting personal assets, tax flexibility, and gaining credibility. Since an LLC is its legal entity if someone sues the company or it gets into financial debt, the owner’s assets are generally protected,” stated Akalp, the CEO and Founder of CorpNet.com. Akalp also addressed tax flexibility and business credibility in further detail.
Flexibility in Taxation: "By default, an LLC is seen as the owner's tax-paying entity," Akalp noted. He also added the following statement: "Profits are subject to self-employment tax, and income and losses are passed through to the owner's tax return. On the other hand, online sole proprietorships, LLCs, may decide to be regarded as an S Corporation, which can result in tax savings in certain circumstances."
Credibility in the Business: "Having an LLC behind a company name may give it a more professional appearance to potential clients, vendors, partners, and investors," Akalp explained. "Many people associate the letters 'LLC' with a business that is more capable or professional."
For more additional information on the advantages of establishing a limited liability company, these may be found in the following items:
Simplicity in creating an LLC: Fill-in-the-blanks forms on Secretary of State websites make filing Limited Liable Company (LLC) documents or other types of paperwork straightforward. A separate bank account and credit cards are also required.
Limited Liability Insurance: Limited Liability indicates that an owner's assets are not at risk of being lost, so don’t worry too much about that.
Benefits from Taxes: At the business entity level, the LLC is subject to pass-through taxation. This implies you avoid paying corporate income tax. Profits and losses are declared on the personal income tax return of the business owner.
The Trustworthiness of a Limited Liability Company: It makes a statement to include the LLC as part of the business name. It lends credibility to the corporation as a legitimate entity to the different stakeholders.
Deductions for medical expenses: Medical insurance costs for employees who are not LLC members can be deducted by the LLC. The LLC's owners can deduct premiums paid from their income taxes if the LLC is set up to operate and be taxed as an S Corp. You can deduct the cost of your health insurance if you're a single-member LLC.
Management Structure Flexibility: The LLC can be administered by the management or by its members. The number of members in an LLC is practically unlimited.
Revenues for Members: Revenues for members can be put into a living trust. The LLC can include the living trust as a "member." Remember that trust is a legal document that uses a grantor and trustee to create ownership over assets. The funds in the trust can be transferred to the trustees if the grantor dies, skipping the probate procedure.
Cash Distribution is Simple: Members and owners can withdraw funds from the company's profit account. They can also just do this instead of getting paid.
Losses are Deducted: If the LLC loses money, the loss can be deducted on the personal tax return as a business loss. It has the potential to save you money on taxes in this case.
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