Why You May Want to Form an LLC

LLC agreement Tom Lofton

I find that there are a lot more “unknowns” and “concerns” about an LLC (limited liability company) that perhaps any of the other business structures…at least I seem to get more questions about LLCs than the others. So it caused me to conclude that most people really don’t understand all the benefits surrounding an LLC and how they can take advantage of them.

​LLC Myths 

Let me help to resolve this for you and clarify your thinking…and eliminate some of the myths surrounding LLCs.

1

​The first big “Myth” is about ​COST

​Whether you are just starting your business or have been operating as a sole proprietorship or general partnership, you may be thinking it is too expensive to create an LLC…false. In most cases, they can be easily created and  activated quickly. If you have a well thought out business and know what you want to achieve these can be a very cost effective alternative to some of the other structures.

2

​​The second big “Myth” is about ​TIME

Many business owners assume it will be too time-consuming to put and LLC together…false. I will take minimal time if you are prepared. The issue I see in the time it takes to put any structure together is how well prepared you are to answer the key questions. If you know the questions in advance (from your attorney) and you have solid answers to them when you meet with your attorney, the process is not time consuming…it can be very efficient.

​LLC Benefits

  • Protected assets. LLCs provide limited liability protection to their owners (members), who are typically not personally responsible for the business debts and liabilities of the LLC. Creditors cannot pursue the personal assets (house, savings accounts, etc.) of the owners to pay business debts. Conversely, in a sole proprietorship or general partnership, owners and the business are legally considered the same—leaving personal assets vulnerable.
  • Pass-through taxation. LLCs typically do not pay taxes at the business level. Any business income or loss is "passed-through" to owners and reported on their personal income tax returns. Any tax due is paid at the individual level. And the new tax law (Section 199A of the 2018 Internal Revenue Code) provides additional incentives to have an LLC if your business earns passive income.
  • Heightened credibility. Forming an LLC may help a new business establish credibility with potential customers, employees, vendors and partners because they see you have made a formal commitment to your business.
  • Limited compliance requirements. LLCs face fewer state-imposed annual requirements and ongoing formalities than S corporations and C corporations.
  • Flexible management structure. LLCs are free to establish any organizational structure agreed upon by the company owners. LLCs can be managed by the owners (members) or by managers, unlike corporations which have a board of directors who oversee the major business decisions of the company and officers who manage the day-to-day affairs.
  • Few restrictions. There are few restrictions on who can be an LLC owner or how many owners can be part of the LLC (unlike S corporations).

As you can see, there can be many benefits that are bestowed upon the LLC structure for an organization. But it isn’t the answer for everyone. It takes careful planning to fully understand the advantages and disadvantages of ANY structure. This is where you need a “business oriented” planning attorney that can ask the right questions to guide you through to arrive at the right structure for you, your business, and your family. Doing your homework and preparing will save you both time and money in identifying the right structure for you.