There are benefits to having a Corporation or an LLC that are so beneficial, that most businesses should take this important step. The number one benefit provided to the owners of one of these business entities is the limitation of liability.
Limited liability company – The Advantages
LLC’s call the people that own the interest in the LLC members. An LLC protects the members from being held personally liable for the actions of the LLC. Consequently if a lawsuit were to arise regarding your business there would be a shield of protection that safeguarded your personal assets.
- Flexibility in management. Corporations have a management structure that is often too complex for some people to understand. Frankly, some clients don’t want to understand it or have to deal with it. LLCs do not have the same complex structure of management.
- Pass-through taxation. The profit and loss of an LLC is reported on a personal return. While a tax return still must be filed separately for the LLC, the profits or loss still “pass through” to the owners. To be taxed appropriately for your business you need to consult with an accountant. The correct forms need to be filed for an LLC to elect how the business wants to be taxed. It can be taxed as a partnership or as a S Corporation.
An S Corporation is very similar to an LLC in that it is a pass through entity and provides a shield of protection from personal liability. A Corporation acts through it’s officers and board of directors. This may be more difficult for some clients to understand and implement on an on-going basis.
In Michigan, an S-Corporation can elect to act without a board of directors or officers and be run by the shareholders. An S-Corporation can only have one type of stock. For new business owners, an S-Coproration or an LLC is generally the entity of choice.