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Return To Incorporation Article Archive   Search the Article Archives LLCs: Do They Make Sense for Your Business? By Samantha Fishman With many of the perks of incorporation, without many of the headaches, it's no wonder the flexibility of the Limited Liability Company ( LLC ) is gaining popularity with business owners nationwide, and around the globe. But before you take that leap; is it right for your business? Understanding the Limited Liability Corporation The LLC is a type of hybrid business structure that offers many of the advantages of a corporation, but with the tax advantages and management flexibility of a partnership. Its a popular choice for sole proprietors who want to protect personal assets or secure additional loans - and an LLC can be one of the easiest and least expensive forms of ownership to organize. The limited liability company is now recognized in all 50 states plus the District of Columbia. Sounds great, right? Well, it is for many businesses. But lets take a look at some of the advantages and disadvantages of forming an LLC. Advantages of Forming an LLC: * Liability Protection Without the Red Tape - Generally, theres no personal liability of members (owners) for business debts. And unlike a regular corporation, there are no requirements for regular stockholder meetings, board meetings, or formal minutes. * No Tax - Unless you opt to be taxed, profits and losses are passed through to the members. With an LLC, there is no double taxation threat since a limited liability company is not a separate taxable entity. And for tax purposes, the allocation of profit and loss of an LLC doesnt need to be proportional to ownership interests. * No Citizenship Requirements - You do not need to be a US citizen to own or invest in an LLC. So why isnt everybody hopping on the LLC bandwagon? Lets be honest, nothings perfect - there will be some costs and headaches that stem from operating as an LLC. Disadvantages of Forming an LLC: * Increased Banking Costs - Accounts for small businesses or informal partnerships are often free, as long as you keep a large balance. But a bank account for a limited liability company will probably come with fees $10, $20, or more each month. Something to keep in mind. * More Complicated Tax Returns - An LLC will file its own tax return if operating as a partnership, C corporation, or S corporation. That means your return could cost as much as a few thousand dollars each year. * More Paperwork - Documents for a limited liability corporation must be filed with the state, unlike a general partnership. That means a little more red tape. * Unfamiliarity - The limited liability company is the new kid on the block. Although this is quickly changing, some people are not as familiar with the LLC as they are with a regular corporation - something to consider when luring investors, etc. So the question you should be asking yourself as a business owner is, 'do the benefits of forming a limited liability corporation outweigh the costs?' If youre still not sure, it may be time to talk with an expert. While LLCs are pretty easy to set up by yourself, it might be worth your while to talk to an attorney or accountant about tax issues and the pros and cons of creating a limited liability company. Another great option is utilizing an online incorporation firm. Many companies like The Company Corporation, for example, specialize in offering their know-how to business owners who need a little help. They can answer your questions and assist you in setting up your LLC for a pretty reasonable price. About the Author: Samantha Fishman is a web-based investor and entrepreneur. She operates dozens of sites and has an MBA in Technology Management.

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