A limited liability company, also known as LLC is an exceptional business organization that combines some feature of corporation with partnership or sole proprietorship and creates a room for its members to gain flexibility and personal asset protection during the course of operating the business. There are various benefits gained by forming an LLC, such benefits include having an unrestricted business life and few ownership limit to adhere to.
LLC creates liability for members and managers by providing them with a “limited liability protection” which makes members legally responsible to the amount of their investment in the company and exempts them from taking responsibility of the company’s debts and other business responsibilities or obligations. In retrospect, member’s personal asset will not be taken as compensation if a legal proceeding is filed against the LLC Company.
The management and operation of an LLC is flexible and accommodating, giving members the opportunity to implement their own decisions and choose their level of commitment in the operation of the business. LLC creates room for members to work comparatively like partners in a partnership, in the running of the day to day affairs of the business. The LLC can also be in form of a corporation where the real owners do not participate in running the affairs of the company but rather, employ or appoint non members to take full responsibility in the management and operation of the company.
One of the major benefits of forming an LLC is that it is treated by the IRS as “a pass-through entity”, making it dependent on its members for taxation purposes. Since an LLC may chose taxation as a sole proprietor or a partnership, it is not expected for members to present taxes on the business level with the IRS. But rather, members are allowed to present their portion of the company’s profit and losses on their individual or joint income tax returns.
Another important reason why business owners choose to form an LLC is because of its flexibility when distributing the profits and losses of the company. Members of an LLC company are permitted to distribute the company’s profits and losses in any way or manner without considering members inputs or ownership interest. For example, a member may own 30 percent of the company, but members may come to an agreement to give 40 percent of the company’s profit to such member. In this regard, LLCs are permitted to compensate members for services provided to the company.