A bulk of successful businesses today operates as an incorporated company. One of the most popular forms of private limited business structure is the Limited liability Company, also known as an LLC. It is becoming a favorite choice for businesses of all types and sizes, in particular for startups and small firms. This hybrid business entity has favorable business, legal and tax features, while avoiding some restrictions applied to Corporations. It is not a walk in the park to run an LLC, but it is simpler than managing a corporation, that is for sure.
Establishing an LLC
LLC is not a corporation, even though it offers many of the same benefits. Think of it as a combination of a corporation and a partnership. In many countries, it is quite simple to form an LLC, since you just need to fill out a memorandum or articles of organization and pay the filing fee. Even if state agency that handles business registration gives you some hard time, don’t despair. Managing an LLC will be a lot easier than running a corporation.
Advantages of LLCs
Reduced personal exposure to lawsuits is one of the main reasons to start an LLC. Personal assets are out of the harm’s way, and you won’t have business debts and claims hanging over your head. This protection is not absolute, however, and there are certain exceptions to note.
Some general rules like keeping an accounting and financial records apply, so don’t let tax inspector’s surprise visit turn into a nightmare. The income passes through the company to the owners who report their share of profits and losses on their individual income tax returns. This is called the pass-through taxation feature which leads to the much-wanted avoidance of double taxation. It brings considerable financial benefits to the smaller businesses.
You can set the financial framework and working relationships with other owners through an operating agreement. Even though most states don’t require the written operating agreement, it is advisable to have one. It defines the rights and responsibilities of the members, and it can save the company in times of turmoil.
LLCs around the world
There are different financial and tax legislations and various types of business structures around the world. Don’t get confused by all those different abbreviations and terms. In some countries like Austria and Germany LLCs are called GmbH and a single shareholder can establish them. This business organization is also popular in many Latin American countries and it is called limitada.
The booming market of Asia is teeming with LLCs, and in Hong Kong and Singapore an LLC is the most common incorporated type of company. This is why there are many resources to help you with Singapore company incorporation that provides limited liability to the LLCs and LLPs and other benefits. As in many other countries, shareholders are not personally responsible for the company’s debts and legal actions against it.
Work hard, sleep well
LLCs have the financial and legal benefits of both sole proprietorship and corporation. It is also easier to set up and run the LLC than a corporation. It also has both an operational flexibility and pass through taxation feature. Owners are often free to choose to carry out any form of profit distribution, and the limited personal liability means that LLC assets are used to pay off business debts. You can’t be held liable for company losses and debts, so it should help you sleep better. Even if the company faces bankruptcy, your car and house won’t have to go down the drain.