Home Taxes The Benefits of Forming an LLC

The Benefits of Forming an LLC


When you start researching how to incorporate a business, you might be surprised at how many types of business entities the IRS recognizes.  Choosing an entity type that is not appropriate for your business can lead to a lot of unnecessary tax expenses.  A Limited Liability Corporation (LLC) is a desirable choice for many businesses.  For a lot of businesses, the LLC pro’s outweigh the cons.

What is an LLC?

LLC stands for Limited Liability Corporation.  It is one of the business entity types acknowledged by the IRS.  In some ways, an LLC is similar to a corporation (the business designation used by big businesses).  It also has some features in common with a sole proprietorship.  An LLC has a lot of flexibility; the proprietor can decide to have it taxed more like an S-corporation, sole proprietorship, or C-corporation.  An LLC can have one or more people listed as its owners.

Advantages of Forming Your Business as an LLC

One reason for the popularity of LLCs is their flexibility.  The articles of organization, the LLC forms stating its bylaws, vary a lot from one LLC to another.  A big advantage of an LLC’s flexibility is the ability to choose a business structure that will not increase their personal tax burdens.  Another advantage of this flexibility is that an LLC requires less official record keeping than a corporation.

Entrepreneurs often choose to form an LLC company specifically because of the “limited liability” part.  Limited liability means that you, the LLC owner, will not be held personally responsible for the company’s debts.  At the same time, there is no double taxation.

Many people choose to form an LLC because from a tax perspective, it is an inexpensive and low-maintenance business structure.

David Author
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