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Whether you have been operating as a sole proprietorship or are just starting your business, you may want to know about the key benefits of Limited Liability Company (LLC) over other legal structures. An LLC allows you to enjoy a combination of positive attributes of a corporation, partnership, and sole proprietorship, without having to deal with the drawbacks of these business entities. LLCs are governed by the Limited Liability Company Act, and you may need the legal services of an experienced business law attorney to help you with the incorporation process.

Here are some of the major benefits of starting or switching your business to an LLC:

1. Limited Personal Liability
An LLC provides limited protection to the individual owners or members of the business; meaning that they are not personally responsible for the LLC’s debts and liabilities. This enables the individual owners to keep their personal assets – savings accounts, car, house, etc. – safe from lenders and creditors. However, your personal assets may be at risk in cases, where you have provided a personal guarantee for a business debt or breached your duties toward the LLC.

2. Custom Terms and Rules of the LLC
The terms and rules that govern each member of an LLC are laid out in an agreement known as the LLC Operation Agreement. Since the members of the LLC draft this contract, they can tailor the terms to meet their specific needs and preferences. This form of autonomy is known as freedom of contract.

3. Flexibility in Taxation
Corporations have to pay double income tax because its profits and shareholder dividends both are individually taxed as income. On the other hand, LLCs get a “pass-through” treatment where profits of each member are taxed only once on individual income tax return. This means that any income tax due is paid by the owners separately.

4. Discretion in Organizational Structure
Unlike corporations where it is essential to have a board of directors in place for decision making, LLCs enjoy discretion in establishing any type of organizational structure approved by the members. The LLC can be managed either with the help of managers or by the owners themselves.

5. Compliance Requirements
Another benefit LLCs enjoy is that they have to comply with fewer state-imposed requirements and formalities. This allows the members to file less paperwork and focus their time and energy on their core business.

6. Establishing Credibility Becomes Easy
Because of the LLC structure, it becomes easy for a new business to build credibility with vendors, suppliers, partners, customers, and employees. This is due to the formal commitment of each member to the LLC.

7. Less Administrative Hassles
Similar to a limited partnership, members can decide whether they want to be a part of the daily operations or remain just investors to avoid administrative and management related hassles. This can be achieved through adding a clause in the LLC Operating Agreement.

While there are many benefits of an LLC, there are a few drawbacks as well. It is essential to get legal counsel of a reliable business law attorney before making a decision. Contact the Law Office of John C. Grundy at 330.637.9030 or online to schedule your consultation today.