Why Forming a Limited Liability Company Makes Good Business Sense

The Vision

Benefits of Limited Liability Company in DenverAre you planning to start a business venture with one or two partners? Then you might want to think about forming a limited liability company. This type of business ownership practically combines all the benefits that sole proprietorship, partnership and corporation enjoy.

Limited liability

A limited liability company, or LLC, is pretty much similar to a corporation in the sense that the owners are protected from being personally liable in the event that the company incurs debt. The extent of the liability of the owners also referred to as members, is limited to their investments. Let’s say someone filed a lawsuit against your company, which may lead to bankruptcy, your personal assets will have legal protection. Unlike if you are in a sole proprietorship, your assets are not at risk since these are entities separate from your business. Get advice from a small business lawyer in Denver to learn more about the legal advantages of forming an LLC.

Reduced taxes

In terms of paying taxes, an LLC is not a separate entity. Instead, it is what the IRS refers to as a "pass-through entity." It is similar to a partnership or sole proprietorship in a way that profits and losses pass through the business and then directly to the owners. Depending on the number of your LLC members, the IRS will consider your businesses as if it is a sole proprietorship or a partnership. In addition, LLC members are nothing but self-employed business owners. It is solely the responsibility of each member to set aside enough money to pay the taxes for their profit shares.

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In a limited liability company, the members do not need to pay taxes on most of the money that they spend for the business. They can just write off the actual business expenses from the company income. This reduces the profits that need to be reported to the IRS.

Profits and losses allocation for tax purposes is easier in an LLC. For corporations, the amount of profits that shareholders report on their federal tax returns should be equal to their shares. On the other hand, LLC members may decide among themselves how to split their income. This is as long as they follow the IRS’ rules regarding partnership income distribution.