When you are setting up a company, there is a wide range of business models you can choose from. You can register a Limited Liability Company (LLC), a sole proprietorship, or a corporation. Over the years, people have gravitated towards LLCs. Here is a look at their advantages to explain their popularity.
Equitable Profit Distribution
In an LLC, you can distribute your profits in whichever format you wish without following a specific ownership hierarchy. For example, if there are 2 or more owners in an LLC, they can agree that one owner equitably gets a bigger share of the profits. This can be based on the amount of labor or funding that they have put in.
Corporations on the other hand simply divide the profits according to the number of shares a shareholder has. Therefore, if you want more control over who gets what in terms of profits, an LLC is advantageous.
Limits Your Liabilities
As the name suggests, with an LLC you get to limit the extent of your liabilities. An LLC also has the corporate veil. This simply means if your business accrues debts, you are not bound to pay them. The business exists on its own separately. To add, if you are in an LLC with many people, everyone deals with their debts. If one of your partners gets sued for a large sum, you are not all bound to pay up. With other companies like partnerships, the liability is shared between all partners.
Management and Ownership Flexibility
Running an LLC is almost a breeze. An example is with corporations, they are legally obligated to do annual reports and annual general meetings. With an LLC, you can conduct your business as you wish. This option is particularly ideal if you run a small, informal business. You can also have as many owners as you wish. Corporations mainly cap the shareholders to 100 which can be disadvantageous.
Added Tax Benefits
When it comes to LLCs, the default way of taxing is the same as the sole proprietorship. This means that it has the advantage of pass-through taxation and does not pay corporate tax. In an LLC you do not get tied down to paying both personal and corporate tax.
Having an LLC has a host of benefits including limiting personal liability, flexibility, and better taxation. Running an LLC also comes with fewer formalities and requirements for a smooth experience. These advantages make LLC’s the better option compared to other company models.