You are faced with many questions when starting your business. One of those questions is what type of entity should my business be. Many businesses choose to operate as a limited liability company. Operating your business as a limited company offers several benefits over operating it as a sole proprietorship or a C-corporation.
A limited liability company is a fairly new entity created in Texas law. It has characteristics of both a corporation and a partnership. A limited liability company has members that are comparable to shareholders in a corporation. These members receive liability protection like shareholders of a corporation do. This means that members of a limited liability company cannot be held personally responsible for actions taken by the limited liability company.
One of the main differences in a corporation and a limited liability company is the way the company is taxed. A corporation is subject to what double taxation. First the corporation is taxed, and then the shareholders are taxed on the income received from the corporation. A limited liability company has more options when it comes to taxes. First, it can be taxed as a sole proprietorship or a partnership. That means that the company’s income passes through the company to the members, and the members are responsible for paying taxes as if they were self-employed or were a partnership. The company itself does not pay taxes like a corporation does. It can also choose to be taxed as a C-corporation or an S-corporation. In order to determine which form of taxation is right for your company, you should speak with an accountant who understands small businesses.
A limited liability company has the advantage of being more flexible than a C-corporation. A limited liability company does not have to hold annual meetings like a corporation does. It can also be formed with just one individual. There are far fewer administrative requirements with a limited liability company, which means you can concentrate on running your company and not have to deal with the complications of a corporation.
If you are forming a new business, an experienced business law attorneys can advise you on the best strategy when forming your new business.