When Forming an LLC is a Good Idea
If you run a business as either a sole proprietorship or partnership, you may want to consider forming an LLC. An LLC still allows you to run your company as a small business, but it provides most of the legal protections of a corporation. As your company grows, you may discover that need such protections in place. If you are interested in restructuring your business, talk to a Birmingham corporate law attorney about what type of structure is right for you and about what you need to do to bring your new business to life.
The Basics of an LLC
An LLC—or Limited Liability Company—is a business structure that provides a company with limited liability (hence the name), similar to a corporation. However, an LLC is a structure designed for small businesses and is easier to run and maintain than a corporation. In addition to providing the protections of a corporation, an LLC allows for all the tax benefits of a partnership or sole proprietorship.
- Limited Liability: The “limited liability” aspect of an LLC essentially means that the business owner or owners do not themselves assume responsibility for any debts accrued by the company or claims brought against the company. Any liens or lawsuits are brought against the company, and the only assets that can be used as collateral are those that belong to the business.
That said, this protection does not extend to illegal acts or fraudulent acts performed by the owners. Certain acts of negligence are not covered either.
- Pass-Through Treatment of Income Taxes: Unlike a corporation, which is considered a separate entity for tax reporting purposes, an LLC is not considered distanced from the owners. You can keep things simple by reporting the LLC’s losses and earnings on your own personal return.
How Your Business Can Benefit From an LLC
There are several advantages of forming an LLC, but probably the greatest advantage is the fact that you, as an individual, assume little to no liability for any debts incurred by the company or claims brought against the company. If a lawsuit is brought against your business, the only assets that a lien can be placed upon are those that belong to the business. Your home, vehicles, and other personal belongings are safe from seizure.
Another benefit of an LLC is that it is cheap and relatively easy to form. Unlike a corporation, which requires mass amounts of paperwork, a significant amount of time, and a lot of money to create, an LLC can be created by submitting just a few documents and paying a small fee. As a result of your efforts, you will get most of the protections of a corporation.
Of course, there are also the tax benefits of an LLC. With a corporation, the net income is taxed first, and then earnings are taxed a second time once the money has been distributed to the owners. You can avoid this type of double taxation by forming an LLC thanks to the tax pass-through benefits.
Discuss Your Business Formation Options With a Corporate Law Attorney
If you are at the point in your business where you are thinking about incorporating, contact an Alabama corporate law attorney before you make any final decisions. Though there are several benefits to forming an LLC, you may discover that it is not right for you—or you may discover that it is. Remove any uncertainty by consulting with one of our representatives at Cloud Willis & Ellis. Call today to schedule your consultation.