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Limited Liability Company: Why choose an LLC as your Business Type?

What is a Limited Liability Company

LLC stands for Limited Liability Company and has rapidly become one of the most popular business entity types for new and small businesses. The reason for this is because it’s simpler and potentially more flexible than other business types (S- Corp., C- Corp., etc.,). The LLC business structure combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation, creating the best of both worlds for business owners. This means that if you choose to form an LLC, your business will become its own legal entity that has separate debts and legal matters. However, LLCs are still tied to your personal taxes. If you are the owner of an LLC, you are referred to as a member, and LLCs can have a single member or multiple members. Unlike a Corporation or other business types, an LLC does not have shares or shareholders. Also, with an LLC, the members are not personally liable for the debts and obligations of the corporation.

Why choose an LLC as your Business Type

If you’re not thinking of raising money for your new business, think you may need to protect your assets and desire flexibility with business management and taxes, then an LLC business type could be a good fit for you. Whether you are a sole proprietor, have a partner, or a multi-member corporation, the LLC is an excellent choice for small business owners, as it can provide the same limited liability protection as a corporation, without many of the complexities and formalities associated with them.

Taxation Benefits of an LLC

There are many tax benefits to an LLC business structure. Members of an LLC can have their income flow directly to them. This helps avoid the double taxations complications of other business types, such as a C- corporation. Every member (Owner) of an LLC has Limited Liability. That means that every member has their own responsibility for the taxes for the business. This ensures flexibility throughout the organization. Due to this structure, one person is not liable for all debts of the company. It’s split amongst the members of the business.

Organizational Chart Break Down

  • Members: The members of the LLC have complete ownership. However, they don’t particularly participate in the day to day operations on the business.
  • Managers: Hired individuals (i.e., employees or third parties) who have been designated to handle specific day to day operations of the company. These assignments/ roles of the managers are usually delegated from the Managing Members.
  • Employees: Assist the managers with specific day to day task.

Limited Liability Company


LLC Requirements

Due to the flexibility of the business structure, LLCs are not required to hold annual meetings and keeps minutes. They’re offered much more leniency with record keeping. The required documentation for the LLC is the “Operating Agreement”. This document would entail all essential provisions, such as ownership, members changes etc, If there were ever a change with the members of the business, it would be outlined in the Operating Agreement (removal, adding, death, etc,.) The operating agreement is an internal document, and is an agreement amongst the members or owners, which means that it’s not recorded with the state.

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The Different LLC Types

  • Domestic LLC: If your LLC is formed and operating within your state, this is a domestic LLC. Your state has the authority to govern your LLC if established within their jurisdiction.
  • Foreign LLC: This does not mean that the LLC was formed internationally and operating in the U.S. A foreign LLC is operating in a different state than the LLC was established. For example, you might have developed your LLC in Texas, but you’re running your LLC in Georgia.
  • Member-Managed LLC: This type of LLC is where all owners (members) are operating the business themselves, equally. This is the most common type of LLC.
  • Manager-Managed LLC: If some of your business partners want to remain passive in running the business, then this type of structure is a manager-managed LLC. Either members or nonmembers can be delegated as a manager.
  • Single-Member LLC: Simply put, this is an LLC with only one member.
  • Multiple-Member LLC: Simply put, this is an LLC with multiple members. A multi-member LLC must be more careful in spelling out carefully with the LLC Operating Agreement the rights of each member in case the LLC folds, or there is a death or disagreement.
  • Series LLC: A Series LLC is a unique form of an LLC that acts as a master LLC or umbrella over a series of separate legal entities. This can be a series of members, assets, managers or interests. The series LLC originated in Delaware and is now an option in only eight states: Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, and Utah.
  • Restricted LLCs: Restricted LLCs are a type of LLC available in Nevada only that was launched in 2009. These kinds of LLCs choose to be restricted within their Articles of Organization and therefore cannot make specific business distributions among members until ten years after forming their LLC.
  • L3C: An L3C company is a for-profit company with a stated charitable social purpose. This type of LLC is a hybrid business structure that uses the legal and tax flexibility of an LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.
  • Anonymous LLC: An anonymous LLC is where the ownership details of the LLC is not made public by the state the LLC is registered. New Mexico is one of the only states that allow for genuinely anonymous LLCs.

For more information on Limited Liability Companies( LLC), the advantages and disadvantages, please feel free to contact Incparadise by visiting our website or call at 702.871.8678. We offer many services to help assist you with setting up your new business.

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