Consider the Flexibility of an LLC
There’s a right business structure for your company and many considerations on choice, the flexibility an LLC affords is unique
Whether an LLC or other type of business entity the a core decision which requires careful thought and deliberation as there are many advantages in each.
Consider this business structure for maximum options
- Choosing the right business entity is a critical decision, and the LLC is one option that affords a high level of flexibility to business owners.
- LLCs offer flexibility in terms of formation of the company, allocation of profits and losses, and retirement planning, among other areas.
- Always seek the professional input of your attorney and accountant before deciding if an LLC is right for your company.
Choosing the right business entity is a critical decision. After all, no one starts a business to be limited by constraints; that would be completely contrary to the entrepreneurial mindset. As such, its important to be mindful of the limitations of different business structures and to choose one which is conducive to the level of flexibility required by your business.
The Limited Liability Company (LLC)
The Limited Liability Company (LLC) is one such business structure, known for its adaptability based on the changing needs of the business owner(s). Like other business entities (LLP and C Corporation, for example), it shields the business owner from personal liability in the majority of cases. But unlike some other business structures, the LLC affords a significant amount of operational flexibility to the business owner.
Out of State and S Corps
One area where this operational flexibility comes into play is in the formation of the company. Many business entities an S Corporation, for example prohibit owners that are non-residents. That means that anyone who lives outside the state where the company is formed cannot own any part of the business, eliminating a large pool of investors and partners.
The LLC, in contrast, enables the business owner to obtain partners that are non-residents. If a business owner is looking to obtain investors in the formation stage, the flexibility of an LLC may be vital to getting the company off the ground.
LLCs Profit and Loss to Partners
Another common situation that the LLC is more accommodating toward than other business entities is in the allocation of profits and losses. In an LLC, profits and losses do not have to be allocated by ownership percentage.
LLCs allow for an operating agreement that assigns profit and loss flexibly between partners, an essential option in partnerships (such as in real estate or professional services) where contribution to the partnership varies from year.
Partner Flexibility
If one partner is responsible for the majority of profit that fiscal year, she/he can be allocated his or her fair share, instead of splitting the proceeds 50/50 just because thats the breakdown of company ownership. For this reason, LLCs are well equipped to managing transitional stages where one or more partner wishes to scale back their involvement but not withdraw their ownership of the company.
Retirement Advantage
Another added advantage of the LLC entity is in the retirement planning arena. Under current tax laws, the profit from an LLC for an active member working for the business while subject to self-employment tax qualifies for consideration for retirement planning.
The Limited Liability Company can be an excellent choice for many businesses, but no one structure is right for every business. Since choosing a business entity involves many varied considerations, it is important that business owners seek the input of an attorney and tax professional to see if the LLC makes good business sense for your company.
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