Recent years have seen an exponential increase in the popularity of the global cryptocurrency market. According to Allied Market Research, this market was valued at $1.49 billion in 2020 and is projected to reach $4.94 billion by 2030.
Cryptocurrencies are digital or virtual currencies that use an alternative form of payment via encryption algorithms. These currencies function both as a currency and as a virtual accounting system.
Specifically, this virtual currency uses blockchain technology to authenticate transactions. Instead of relying on banks to verify transactions, it uses a peer-to-peer system that enables users to send and receive payments from anywhere across the globe.
Crypto has several advantages, including faster money transfers and decentralized systems. At the same time, some disadvantages of cryptocurrencies include their price volatility and high-energy consumption for mining activities.
Whether you are an experienced crypto trader or a newbie, it is very important to understand you can enjoy the benefits of cryptocurrency and protect yourself from future liabilities. This blog will explore an LLC, why it matters for crypto trading, and how to start one.
What is an LLC?
A Limited Liability Company is a hybrid legal entity. It features some of the greatest characteristics of structures like a corporation, partnership, and sole proprietorship.
What makes this entity popular among budding entrepreneurs is its flexibility. Small businesses and startups can enjoy the same liability protection corporations have without the tedious paperwork. Their personal assets stay protected from any liabilities or debts their company may incur.
When a business is structured as an LLC, the court sees the venture as an artificial person. This means they are liable for their legal obligations when entering a contract. Additionally, in the United States, LLCs are permitted to own and trade cryptocurrencies, such as Bitcoin and Ethereum.
Why LLCs Matter For Cryptocurrency
There are several advantages to developing a crypto LLC aside from liability protection and ownership flexibility.
Suppose you are operating your LLC for crypto trading. In that case, you can write off relevant expenses through the Schedule C form. The form is used to report the income and expenses of a business you own as a single-member LLC.
Individuals operating as a trade or business can write off casualty losses due to scams and hacks.
Another benefit that makes LLCs popular for cryptocurrency is their tax advantages. Unlike other entities, LLCs don’t have a federal tax classification. The Internal Revenue Service (IRS) considers them pass-through entities, meaning their earnings go straight to their owners.
And because of this, the company is no longer required to pay corporate taxes. Instead, the owners of the crypto LLC are taxed at a personal level.
Other entities like C corporations are taxed twice because their earnings are distributed to their shareholders. The corporation must pay corporate taxes, and its shareholders must pay through income taxes.
Corporations are required to have a fixed management structure. They need a board of directors that oversees their company policies and a set of officers that manage their daily operations.
On the other hand, LLCs are not required to have this formal structure. You can have more freedom to choose how you want to operate your crypto mining through an LLC entity.
When you create an LLC for crypto investing, you can distribute your profits in various ways. Crypto LLCs are not required to share their earnings equally. For example, if an LLC has two owners and both agree that one will receive a bigger portion of the profit, it can do so.
Unfortunately, this kind of profit distribution doesn’t apply to corporations. They need to share their earnings according to the number and types of shares they hold.
What Are The Requirements Of Creating An LLC For Cryptocurrency?
If you want to create an LLC for cryptocurrency, here’s everything you need.
The State of Nevada requires all LLCs to have a registered agent. A registered agent is assigned to receive all of the official and legal documents on behalf of the LLC. They need to be available at an address within the state.
You can name an employee your registered agent, but some companies typically use registered agent services.
Articles of Organization
Articles of Organization are legal documents with important information like your venture’s name, principal place of business address, and how you plan to manage your crypto LLC.
The State of Nevada requires you to file them through the Secretary of State. And typically, you have to pay a filing fee, which varies from state to state.
Once your formation documents have been approved, you’ll be able to get an official certificate of registration. You can use your business license to get a tax ID, which you’ll need for opening a business bank account.
While not every state requires an operating agreement, this document is vital for outlining everyone involved in the LLC’s financial, legal, and management rights. Typically, it discusses how profits will be distributed, who should contribute to your crypto LLC’s capital, and more.
An operating agreement is important, especially if you have a business partner. It ensures everyone knows their rights and responsibilities, regardless of what happens.
Make The Right Choice Today
An LLC is a simple and adaptable business structure perfect for startups and small businesses. It provides the legal protection you need to secure your personal assets while running your business.