LLC Basics: What You Need to Know
Nothing like having an adrenaline rush and having the lightbulb moment from a creative business idea. You grab the sketch pad and drift into a plethora of ideas that will make you millions of dollars in no time. You want to show and tell the world about your business, but there is one problem… No one can identify your business. There is no proof that you are a legitimate business. So what do you do now? If you are serious enough about your business and you are ready to take the leap of faith, an LLC is a good way to lock that idea into fruition. What is an LLC you ask?!
What Is an LLC?
An LLC (Limited Liability Company) is a type of business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability protection of a corporation. In an LLC, the owners (also called members) are not personally liable for the debts or legal liabilities of the business. This means that if the company is sued or cannot pay its debts, the owner’s assets are protected.
LLCs are often preferred by small business owners because they are relatively easy to set up and maintain, and they offer flexibility in terms of how the business is managed and how profits and losses are allocated among the owners. LLCs can have one or more owners and can be taxed as either a partnership or a corporation, depending on the needs of the business.
Pros and Cons of an LLC
Pros
Limited liability protection: As mentioned earlier, an LLC provides limited liability protection for the owners, which means that their assets are protected from the debts and legal liabilities of the business.
Pass-through taxation: An LLC is a pass-through entity for tax purposes, which means that the business itself does not pay taxes. Instead, the profits and losses of the business are passed through to the owners, who report them on their personal tax returns.
Flexibility: An LLC offers a great deal of flexibility in terms of how the business is structured and managed, which can be especially beneficial for small businesses.
Easy to form and maintain: LLCs are relatively easy to form and maintain, especially when compared to other types of business entities like corporations.
Credibility: Having an LLC can give your business more credibility in the eyes of customers, clients, and potential investors.
Cons
Limited life: In many states, an LLC has a limited life, which means that it may dissolve upon the death or departure of one of the owners.
Self-employment taxes: While LLCs are pass-through entities for tax purposes, the owners may still be subject to self-employment taxes on their share of the profits.
Additional paperwork: LLCs require more paperwork than sole proprietorships or partnerships, including an operating agreement and annual filings with the state.
Limited access to capital: LLCs may have limited access to capital, as they cannot issue stock as corporations can.
State-specific regulations: The regulations governing LLCs can vary by state, which means that you may need to navigate different rules and requirements depending on where your business is located.
Types of LLCs
Now that you know what an LLC is and the good and bad of them. Let’s see the types of LLCs that are available to you. Depending on your business model, there are different types of LLCs. You could be the lonely business owner or a collective that you and your partners decided to own the business together. Regardless of the circumstances, there is an LLC for you. Check them out below.
Single-member LLC: This type of LLC has only one owner or member.
Multi-member LLC: This type of LLC has two or more owners or members.
Manager-managed LLC: In this type of LLC, the owners designate one or more managers to run the day-to-day operations of the business.
Member-managed LLC: In this type of LLC, the owners take an active role in managing the business and making decisions.
Series LLC: This is a relatively new type of LLC that allows the creation of separate “series” or divisions within the LLC, each with its assets, liabilities, and members.
Summary
In most cases, starting a dream aka business can seem like a daunting process but taking the leap of faith to gain ownership is a step closer to the goal. Getting an LLC is a great milestone to have, however, there are more steps to follow to continue the road to success. Consider an LLC the act of faith and a promise to go forth with the dream, but understanding faith without works remains an idea. You are a soon-to-be owner, but let’s make sure you’re a progressive one and don’t let your ideas die. As always, nothing works unless you do!
Disclaimer
We are not certified financial planners/advisors nor certified financial analysts nor an economist nor CPAs nor accountants or lawyers. We are not finance professionals through formal education. We believe and take pride in a sense of freedom, satisfaction, fulfillment, and empowerment that I get from being financially competent and being conscious of managing income. The contents on this site are for informational purposes only and do not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my posts is appropriate for you or anyone else. By using this site, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found on this site.
