Are you wondering if an LLC is the right structure for your business? Learn more about how LLCs work and see if it is the right business structure for your new business:
What is an LLC?
The LLC is a hybrid entity that combines the pass-through attributes of a partnership with the corporate characteristics of limited liability. Members' personal assets are protected against any legal claims against the business because the LLC separates the members from the business itself. Unlike S corporations, which are limited to 75 shareholders, the formed LLC can have an unlimited amount of members.
The LLC structure can be used to hold property and transact any type of business. For tax purposes, LLC structures are similar to sole proprietorships, general partnerships, limited partnerships, S corporations, and trusts. An LLC is a flow-through entity. It passes all of the LLC profits and losses directly to the members (i.e., owners) of the LLC. Individual members are therefore taxed at their personal tax rates.
The limited liability company (LLC) is a unique form of business that blends the characteristics of corporations, partnerships and sole proprietorships into a simple and flexible business entity that many small business owners prefer.
Advantage of LLCs:
Asset Protection - In today's 'lawsuit-happy' environment, it's more important than ever to put a legal shield between you and your business. As a completely separate entity, LLCs separate the owners from the business itself. There is no personal liability for any LLC debts even if they relate to a contract or tort.
Tax Advantages - An LLC legally separates the business from its owners (like a corporation), yet it can elect to be treated as a partnership for tax purposes. In this case, the LLC doesn't pay any tax itself – the income is passed through to the owners as with partnerships. The tax rules governing partnerships are more flexible, allowing for more flexibility in tax planning. It is up to you to be creative and take advantage of every possible tax break you qualify for. Your specific situation will dictate whether an LLC or a corporation offers the best tax advantages for you.
Ability to Raise Capital - When you start an LLC, it is simple to bring new owners (called members) on board, and there is no limit as to how many can be involved. These additional investors can be individuals, corporations, trusts, and pension plans, none of which even have to be in the same state or in the United States.
Easy to Run - The LLC entity was formed around the principle of the freedom to contract. This basically means the owners only have to agree among themselves how the company will be run and the agreement will be held up in court. With an LLC, resolutions, amendments, meeting minutes, and annual board meetings are not required by law, as they are with corporations.
Disadvantages of LLCs:
Federal Security Limitations: The LLC is only available to privately owned companies. If a company were to go public, it would have to be a C corporation. With merger laws, it would be relatively easy to convert a Nevada LLC to a C corporation.
Loss of Pass-Through Tax Treatment: This occurs when an LLC is viewed as a corporation, which happens when there is an election filed with the IRS and the LLC qualifies for three of the four criteria that define a corporation. If it is taxed as a partnership, pass-through treatment still applies for taxes.
State Tax Treatment: Some states impose an income or franchise tax on LLCs.
Is an LLC the right structure for your new business?
Don't wait to take advantage of the protections the law affords you and your business, form a Nevada LLC today! No matter what business entity you choose, it needs to be for the right reasons. Let our Nevada business formation experts help you decide if forming a Nevada LLC is right for you by calling 1-800-508-1729.
