The Limited Liability Company - Benefits And Advantages

This business structure combines the best aspects of incorporation with the tax advantages of partnership, without the red tape of either. Experts have said that anyone starting a new business must separate their personal life and assets from their business ventures, in order to avoid any personal liability. A limited liability company is personal protection in its purest form. As a business owner, you need to avail yourself of any and all laws that are designed to provide any type of protection. Whatever form of business structure is selected, whether corporation, partnership, LLC, etc., it needs to be well thought out and put in place at the beginning.

The limited liability company does have the benefit of simplicity in its operation and understanding. It was designed with the small business owner in mind and once in place it does not require ongoing, high maintenance. When you form a limited liability company you have the added benefit of it being easily modified, to reflect any changed objectives or circumstances.

Most states do require an LLC business to have an Operating Agreement of some sort between the owners/members, with regard to how it will be operated. It covers many different areas of operation, including management, distribution of profits and losses, termination, admission of new members and any special allocations. It also contains certain things that qualify it for the quite beneficial partnership tax agreement. If the document is not drawn up correctly, then of course the LLC will not qualify and will be taxed as a corporation. The individual state statutes are classified as "flexible" or "bulletproof." A bulletproof statute requires that the operating agreement have certain provisions that will allow them to qualify for partnership taxation. Flexible statutes allow the drafting of the Operating Agreement up to the individual organizers. Although not all states have adopted it, there is a process called "Check the Box," wherein the LLC organizer can just elect what tax treatment is preferred. If you are unsure as to whether or not this is an allowable option for you, then the safest way to organize is to comply with the original guidelines of the corporate characteristics.

The simplicity involved when forming a LLC is one of the advantages that attracts business owners, and another is the "freedom of contract" principle, which allows the owners/members of the limited liability company to form and run the company in any way they see fit. The actual paperwork is fairly simple as well. Most states only request filing two forms, one is the Articles of Organization and the other is an annual report that updates basic information to the state. There are filing fees required for these forms, but the amount varies from state to state.