If you are a small business owner, it is important to select the business structure that best fits your needs. One of the most popular business structures is a limited liability company (LLC), which is a hybrid business entity that applies elements of both a corporation and a partnership.
The main benefit of an LLC is that, like a corporation's shareholders, each member of the LLC will not be held liable for the debts of the LLC. In contrast, the owner of a sole proprietorship or each partner in a partnership may be held individually liable for the debts of the business.
Consequently, if you have substantial assets outside of your business, like a home or automobile, an LLC can prevent future creditors from having a claim on your personal property.
Unlike a corporation, an LLC can provide favorable treatment to its members at tax season because it is treated as a partnership for tax purposes. Whereas a corporation faces a double tax because it is taxed upfront when profits are earned and again when dividends are distributed to shareholders, an LLC does not have to file its own tax return and members report the profits and losses of the business as part of their individual tax filings.
In summary, an LLC can reduce potential tax payments compared to a corporation while still providing the liability shield to its members!