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Advantages of Limited Liability Companies

Updated on April 12, 2011

LLCs provide several advantages for small business entrepreneurs. In addition to being easy to form, limited liability companies do not require much paperwork in your initial filing. A special component of LLCs is limited liability; the operators (known as “members”) should not — usually — be held liable for the debts of the own wealth are protected if your LLC owes money.

Limited Liability

LLCs exist in a unique nexus of sole proprietorships, partnerships, and corporations, and incorporate the biggest advantages of each. The limited liability company form is less formal and affords increased flexibility than a corporation but still affords the same liability protection. In addition, limited liability companies gain the same tax simplicity provided to sole proprietorships and partnerships but have increased professionalism as a result of being a state-recognized business entity.

You are allowed to elect to have your limited liability company taxed as a sole proprietorship, partnership, or S-Corporation. This decision most often depends on the amount of members your limited liability company has. Regardless, limited liability companies receive the benefit of pass-through taxation. This side-steps the negative of corporate double taxation must pay income tax on its gains and then pay more taxes on its disbursements to owners. LLCs get to only pay tax a single time: on the owners’ personal tax returns.

There is no limitation on the number of members you may have in your limited liability company and there is no limitation on who may serve as a a owner. Your ownership interest in the limited liability company is generally freely transferrable — unless encumbered by the limited liability company's operating agreement — and the limited liability company will continue to function until the end of time so long as there is another person who wants to take your spot.

Though the limited liability company is a younger type of business, it was formed with the needs of small business operators at heart. A licensed business attorney can examine your business and make sure that an LLC is right for you.

Directions for creating an LLC can be found along with the advantages of starting a limited liability company at


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