If you are going into business for yourself, you should consider the advantages
of a limited liability company, otherwise known as an LLC.
The U.S. Small Business Administration calls the LLC a “hybrid”
legal structure. That’s because it offers limited liability protections
similar to a corporation while offering the tax efficiencies and flexibility
of a partnership.
The individuals who own an LLC are called members, and depending on the
state, those members can range from a single owner, to two or more individuals,
to corporations or even another LLC.
The advantages of an LLC, include:
-
Protection from personal liability. Under an LLC, the members are protected; they are not held personally liable
for any actions of the LLC. This means that if the LLC is a subject of
a lawsuit, or if it incurs debt, the members will not have to worry about
their personal assets being taken to pay the LLC’s debt or a jury
award. Their personal assets are shielded, however, that is not the case
of a “wrongful act,” committed by an employee or by the members.
-
Operational ease. One of the greatest advantages of an LLC is its operational ease. Not only
is there less paperwork, but it involves lower start-up costs.
-
Less restrictions for profit-sharing. When it comes to profit-sharing, the LLC has fewer restrictions. This means
that the members can distribute the LLC’s profits according to their
wishes. In effect, the members decide who gets what percentage of the
LLC’s profits.
While there are definite advantages to an LLC, it’s not for everyone.
One of the greatest disadvantages of an LLC is that the members are technically
“self-employed,” and therefore responsible for the self-employment
taxes towards their Social Security and Medicare.
Another option is to request S-Corp status for an LLC.
A Chicago business law attorney from our firm can advise you on the pros
and cons of going this route. In that case, you would have to make a special
election with the IRS to ensure that the LLC is taxed as an S-Corp.
Contact Rifkind Patrick LLC to learn more about LLCs and S-Corps.