|
Advantages of an LLC compared to other entities – limited liability
While a basic partnership may seem tempting due to its flexibility and hassle-free nature, many aspiring business owners will truly benefit from the limited liability offered by the LLC construction. Generally speaking, the member (owner) of an LLC will only have a limited liability for debts acquired and acts carried out by the company. The LLC construction can therefore be used to safeguard your private property and/or secure additional loans.
Advantages of an LLC compared to other entities – no double taxation
One of the advantages of an LLC compared to other entities is that the LLC makes it easy to avoid double taxation. If you for instance form a C Corporation, the corporation itself will become a separate taxable entity and pay taxes. If you then withdraw money from your C Corporation, you may have to pay tax all over again – double taxation. An LLC is not taxed, since profits and losses are passed through to the members (owners).
Advantages of an LLC compared to other entities – tax flexibility
LLC was created with flexibility in mind. One of the advantages of an LLC compared to other entities is that you can choose how you and your company will be taxed. As mentioned above, the basic rule of LLC’s states that profits and losses will be passed through to the members and that the LLC therefore pays no taxes on profits. If you want to, you can however use the flexibility of the system and turn your LLC into a taxpaying entity. The only thing you have to do to make this happen is to file IRS Form 8832.
Advantages of an LLC compared to other entities – disproportional allocations
In most business entities, it is very important that profits and losses are proportional to ownership interests. If a disproportional allocation of profit and loss takes place, it will typically cause grave ramifications when it’s time to pay the taxes. One of the advantages of an LLC compared to other entities is that disproportional allocation of profit and loss are perfectly permissible and can be performed without leading to dramatic changes in taxation.
Advantages of an LLC compared to other entities – no citizenship requirement
For those who do not have a U.S. citizenship, one of the main advantages of an LLC compared to other entities is that there are no citizenship requirements. Even a person without a U.S. citizenship can form or become a member (owner) of an LLC in the United States.
Advantages of an LLC compared to other entities – designed for small-scale business The LLC was designed with the small-scale business owner in mind. It can of course be used by large enterprises as well, but the advantages of an LLC compared to other entities are especially noticeable for small-scale entrepreneurs. The amount of compulsory recordkeeping and obligatory administration has for instance been reduced to a minimum. There are no mandatory annual general meetings for shareholders to arrange and the creator of an LLC is not required to set up and delegate power to a board of directors. Unlike many other entities, the LLC can be set up and maintained by one single person. | 
