Limited liability Company
Limited liability Company
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Limited Liability Company
Different from other business structures, a limited liability company has separate and
dissimilar legal rights and obligations. The most valuable thing about LLC is that its
members are not accounted for debt or liabilities of the company. Making it stand out from
the rest businesses structures LLC benefits is that it’s flexible, easy to change, and simple to
run. For instance, if the LLC owner separates his assets from the business, he should be
protected from the debts and liabilities. If the LLC is said to go bankrupt, the creditors can
only gather their debts from the assets of the business.
An S corporation is a business structure that has attractive tax benefits, and its
liabilities are protected with the corporation. S corporation is essential where businesses
are small and large as members may pay less on tax. S corporations are not entitled; hence
international revenue service manages taxation and prevents the company from double
taxation (Lux & Mclean 1998). Both business structures, the S corporation, and LLC are
obliged to taxation. Disparities occur in that an S corporation, taxes are lined down to
individuals while in LLC, the organization is taxed.
During business formation, it is essential to view taxation as it is considered as an
expense. From the case discussed above, it is crucial to forming an S corporation rather than an
LLC, as the taxes of the LLC, don’t favor individuals. Decision making may be critical, but
considering employee numbers and the business owner will help come to a decision
quickly.
The main advantage of both LLC and S corporation is that they offer limited liability
protection; hence it’s advisable to protect your assets by forming an LLC. With LLC being
flexible and easy to manage, many people are attracted to LLC (Koss, 2007). S corporation
has a vast advantage over LLC in that they can acquire funds from investors and other money
lending institutions.
Contrary S corporations’ members can receive dividends that, in return, lower their
tax billing. When it comes to management, LLC members are privileged to manage and run
the business compared to S corporation. It’s there essential when forming a business entity to
consider factors that affect the operations. One key element is taxation, such that how does
the tax affects both the business and the employee. Another factor is to consider your sources
of capital; they are your investments or from other investors. Management and ownership are
also keys in choosing the business structure you wish to approach based on your type of
business. With the ease of formation, it is better to go with a design that you are free
to establish.
References
Koss, A. M. (2007). Best practice guidance for angel groups–deal structure and
negotiation. Angel Capital Angel Educational Foundation,
http://www.angelcapitalassociation.org/data/Documents/Resources/AngelCapitalEducation/
ACEF_BEST_PRACTICES_Deal_Structuring. pdf.
Lux, M. S., & McLean, S. A. (1998). The IRS Clears the Air on S Corporation
Subsidiaries-Proposed Regulations under Code Sec. 1361 (b)(3). J. Passthrough Entities, 1,
29.
