The Financial Benefits of Making Your Business an LLC

The Financial Benefits of Making Your Business an LLC

The COVID-19 pandemic and the stringent lockdowns across the globe have had a massive hit on the economy. Thousands of businesses closed. Millions of Americans lost their jobs. And even now, we’re unsure of when everything will go back to normal. Despite this, America has seen a surge in startups, with more than three million new business applications filed in 2020. This is due, in part, to the work from home setup, which has provided more and more employees the time and space to build their own businesses. If you’re thinking of doing the same for yourself, why not consider starting a Limited Liability Company? Read on to learn about the financial benefits of making your business an LLC.

Limited Liability

The phrase “limited liability” means that the owners and employees under an LLC are not legally accountable for debts or lawsuits faced by the company. So, if your LLC incurs debt, it doesn’t fall to you to pay off that debt using your personal assets. This stands in contrast to sole proprietorships or partnerships, where the business owners can be held legally accountable to pay off their company’s dues.

Low Starting Costs

One downside of starting an LLC is the paperwork, which is more costly and complicated than that of a sole proprietorship. However, fees are still relatively low. To form an LLC in Colorado, you’ll need to pay just $50 to file your articles of organization with the Secretary of State. Reserving a business name and registering a trademark, both optional steps for your LLC, cost $25 and $30, respectively. In some states, like California, you can even save on filing fees by submitting everything online. Of course, the total cost of forming an LLC varies depending on the state you’re in, but you can expect to shell out between $40 and $500. This may seem steep, but it’s much more manageable than starting a C Corporation, which can cost as much as $800.

Tax Benefits

LLCs are an ideal way to avoid extra taxes. The Balance explains that corporations often have to deal with double taxation, stemming from the need to pay for both corporate tax and personal income tax. LLC owners don’t face the same problem, since all the business’s income is tagged as personal income. If you live in Florida, Alaska, or Texas, this is even more beneficial, as these states don’t tax personal income.

Flexibility in Income Distribution

Since the earnings of LLCs are considered the owner’s personal income, this allows executives to distribute that income as they please. This is especially useful, paired with the fact that LLCs also provide flexibility in the company’s organizational structure. For one, there is no limit to the number of members an LLC can have. It can operate with only a single member having full control of the company. The hierarchy of membership is also a decision that falls to the owners. This amount of flexibility provides you with the freedom to structure your business and income allocation efficiently.

These financial benefits are difficult to pass up on, so what are you waiting for? Get that LLC up and running! For more great articles on Entrepreneurship, check out the rest of our content.