Most small businesses are designed as LLCs (Limited Liability Companies), offering more advantages than other business entities. New start-ups form an LLC because it combines specific positive traits of a partnership, corporation, and sole proprietorship without the shortcomings of these businesses. Although State laws that govern LLCs differ, LLCs have general advantages that include the following;

Flexibility in the distribution of profits

Generally, business entities share profits depending on the ownership interest percentage or capital contribution of the owner. Also, partners distribute profits equally in a general partnership, and organizations possess the liberty to pay shares depending on each shareholder’s proportion of proprietorship interest. But an LLC’s partners maintain flexibility to decide how the profits will be allotted according to LLC’s operating agreement.

LLC partners are not bound to their share of ownership, and they can opt to share the profits differently. For instance, an LLC member may accept to take a lesser share than their rightful proportion if another partner accepts to put more effort towards the daily functions of the LLCs.

Limit your liability

An LLC is a legal entity detached from its owners and individual members. Just like corporation shareholders, an LLC owner isn’t personally entitled to the LLC’s legal liabilities or debts. An LLC owner can lose their capital share to the business. But unlike a general partner or a sole proprietor, the legal obligations of an LLC do not expose the personal assets of an LLC owner such as bank account or home to risk.

In some cases, you may be personally responsible, like when you become a guarantor of business debt, breach your LLC duties or fail to be careful, thereby harming a third party.

Avoid being taxed twice-via deduction

Standard corporations usually experience double income taxation. The company’s profits are subjected to tax as income, and it’s mandatory for shareholders to pay income on all dividends. Basically, LLCs get ‘pass through’ treatment. As a result, allocated profits are taxed once on the income tax return of each member. Besides, the IRS can accord ‘pass through treatment’ to LLCs that meet S corporation or partnership criteria.

Less managerial stress and paperwork

Maintaining and establishing an LLC does not involve much paperwork, not to mention that the task is less complicated. That’s because an LLC records its existence through filing organizational articles by paying the required fee to the relevant bodies, such as the secretary of state.

This filing usually registers the LLC’s location of the main offices, name, planned business duration, and members’ identity. Furthermore, firms should file incorporation articles with suitable state divisions and must observe all statutory requirements and limits. After filing, firms are expected to hold a meeting to elect business officers who determine the firm’s internal management.

The directors often organize meetings to analyze and finalize business policies, finances and strategies and could arrange an impromptu meeting in case of emergency action. Corporations are expected to announce an annual members’ meeting and should file annual reports and even pay fees to preserve their status in the corporation.