I have heard from many people that they do not have any entity formed for their business and operate as a sole proprietor.\u00a0 If operating as a sole proprietor is best for what you do, and your business has very limited liability for the owner, it might not be a bad move.\u00a0 However, there is another entity in the business world that does not add much of a burden on you or the business, can protect the owner\u2019s assets from liabilities, and can have some tax benefits that can only help further your business.\u00a0 That is be the Limited Liability Company (\u201cLLC\u201d).<\/p>\n
Initially, just the name \u201cLimited Liability Company\u201d shows off one of its key benefits, limited liability for the owner, assuming everything is handled properly.\u00a0 LLC\u2019s have the protections of a corporation, without some of the formalities that I will discuss below, in protecting the owner\u2019s personal assets from obligations\/liabilities of the LLC.\u00a0 For example, if your business gets sued by a customer, the \u201ccorporate veil\u201d of the LLC can protect the owner\u2019s personal assets from being attached to any judgment that may come against the LLC.\u00a0 There are various ways that someone can \u201cpierce the corporate veil\u201d and gain access to the owner\u2019s personal assets, but usually that is only when the owner is not operating the LLC as it should be, or when the owner is substantially at fault individually for any injuries.<\/p>\n
Operating an LLC is about as easy as it can get, aside from operating as a sole proprietor, in the entity selection world.\u00a0 While LLC\u2019s have many of the same protections of a corporation, they have none of the corporate formalities.\u00a0 By corporate formalities, I mean the requirement of a corporation to have shareholders meetings and board of director\u2019s meetings; keep minutes, and accurate books and records; and maintain share\/stock certificates and stock ledgers, to name a few.\u00a0 Many corporations, especially those on the larger side, have someone in-house to handle these formalities, but, many LLCs, are not the size of a large corporation, and operating the LLC is easier since formalities are not required.\u00a0 Additionally, forming an LLC is relatively easy, and can be done at a low cost by the firm.\u00a0 Pennsylvania does not even require an LLC to have and file an operating agreement with the state, but we would always recommend that a multi-member LLC, or a single-member LLC that admits new members, have an operating agreement drafted by an attorney with expertise in the area.<\/p>\n
As to the tax benefits of an LLC, I first want to say there are many ways to set-up your LLC for tax purposes depending on each business\u2019s situation.\u00a0 I suggest you reach out to someone with expertise in this area to get things properly organized for your benefit.\u00a0 There are several tax benefits of using an LLC.\u00a0 Initially, all income is \u201cpassed through\u201d to the owner of the LLC and reported on the owner\u2019s personal income tax filings.\u00a0 This could qualify the income for a lower tax bracket, depending on the income of the owner, versus the tax bracket for the same income for a corporation.\u00a0 Additionally, an LLC can avoid \u201cdouble taxation,\u201d which is the taxation of corporate profits and then the taxation of the income that the corporation owner receives as a dividend.\u00a0 As I said above, the LLC income is simply passed through to the owner and taxed only once.<\/p>\n
These are some of the many benefits of operating an LLC instead of a sole proprietorship or many other business entities.\u00a0 If an LLC sounds like the entity for your business, or future business, feel free to reach out to me, or any of the attorneys in the firm’s Business Law Group, and we will be happy to assist you and get you set-up properly.<\/p>\n
This blog post is Part 1 of a two-part series on LLC\u2019s.\u00a0 Look out for Part 2 of the series, which will cover important specifics for LLC formation and considerations for many elements that may get skipped in the formation process.<\/p>\n
If you have any questions about this post or any other related matters, please email the\u00a0Business Law Practice Group<\/a> Co-Chairs, David Blatteis<\/a> at dsblatteis@norris-law.com<\/a>, Dolores Laputka<\/a> at dlaputka@norris-law.com<\/a>, or Graham Simmons<\/a>\u00a0at\u00a0gsimmons@norris-law.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":" I have heard from many people that they do not have any entity formed for their business and operate as a sole proprietor.\u00a0 If operating as a sole proprietor is best for what you do, and your business has very limited liability for the owner, it might not be a bad move.\u00a0 However, there is […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[20,21],"tags":[6,22,23,24,25,26],"coauthors":[],"acf":[],"yoast_head":"\n