Why Most of the Startups Form an LLC? Is it Right Structure for Your Business?

When starting a business, an entrepreneur has many options in front when it comes to giving his business a legal structure. There are varieties of business entities that you can choose for your company, either it is a corporation, incorporation, partnership, or an LLC.

However, as time is passing, more and more startups have started to form their businesses as LLC instead of corporations which was the most trending before LLC.

Yet the question of why most of the Startups are forming LLC is still a complicated one because apparently corporations and incorporations come with comparatively more benefits.

So if you too are a beginner and are wondering whether your startup should form an LLC or corporation, then stick with this article till the end because, in it, we have given some solids reason of why every startup is jumping upon to form an LLC. So buckle up and let’s start.

LLC’s Helps Startups Avoid Double Taxation

The biggest benefit of forming an LLC for a startup is that it helps prevents double taxation. As you may know that corporations are taxed separately, which means that both, the owners and the company have to pay separate tax as it is considered a separate entity.

LLC however, on the other hand, is not considered a separate entity and is thus taxed somewhat like a sole-proprietor which means that LLC itself does not has to pay the tax and only owners are considered responsible for tax charges.

LLC’s are Flexible and Open to Changes

Unlike corporations, LLC is not filled with so many restrictions. Owners are allowed to make their own rules and regulation, though it does have a limit, and they are allowed to makes changes whenever needed in accordance with the situations.

That’s another pro of LLC for startups because new entrepreneurs can face several difficulties by choosing corporations as they come with lots of restrictions regarding making changes.

They are a Great Way to Secure Your Assets

Though LLC is taxed like a sole-proprietorships, however, it is far more protected than the one because it’s the best way you can secure your personal assets from lawsuits.

On the other hand, when you choose a sole-proprietorship or corporation, it can give you a big loss if your Company goes bankrupt because it would also involve your and your partner’s personal assets and property.          

Its Formation Is Fast and Simple

LLC formation is far more easy and quick than any of the other legal entities. It can roughly take one to two weeks to form your LLC.

You can either form an LLC easily by yourself or if you are too busy and don’t even have a minute to waste on it, then you can also hire someone for it as there are many best LLC formation services out there like Zenbussiness and LegalZoom that can get the whole work done for you.

No Restrictions on Ownerships

Unlike S-corporations and incorporations which have a limited number of partners allowed (no more than one hundred) and can only be owned by a US citizen, LLC on the other hand does not come with any such restrictions on ownerships, almost anyone is allowed to form it, either a US citizen or not.

Moreover, there is no defined number of partners, an LLC can have as many partners as you want.

Why Most of the Startups Form an LLC?

When statin a business, an entrepreneur has many options in front when it comes to giving his business a legal structure. There are varieties of business entities that you can choose for your company, either it is a corporation, incorporation, partnership, or an LLC.

However, as time is passing, more and more startups have started to form their businesses as LLC instead of corporations which was the most trending before LLC.

Yet the question of why most of the Startups are forming LLC is still a complicated one because apparently corporations and incorporations come with comparatively more benefits.

So if you too are a beginner and are wondering whether your startup should form an LLC or corporation, then stick with this article till the end because, in it, we have given some solids reason of why every startup is jumping upon to form an LLC. So buckle up and let’s start.

LLC’s Helps Startups Avoid Double Taxation

The biggest benefit of forming an LLC for a startup is that it helps prevents double taxation. As you may know that corporations are taxed separately, which means that both, the owners and the company have to pay separate tax as it is considered a separate entity.

LLC however, on the other hand, is not considered a separate entity and is thus taxed somewhat like a sole-proprietor which means that LLC itself does not has to pay the tax and only owners are considered responsible for tax charges.

LLC’s are Flexible and Open to Changes

Unlike corporations, LLC is not filled with so many restrictions. Owners are allowed to make their own rules and regulation, though it does have a limit, and they are allowed to makes changes whenever needed in accordance with the situations.

That’s another pro of LLC for startups because new entrepreneurs can face several difficulties by choosing corporations as they come with lots of restrictions regarding making changes.

They are a Great Way to Secure Your Assets

Though LLC is taxed like a sole-proprietorships, however, it is far more protected than the one because it’s the best way you can secure your personal assets from lawsuits.

On the other hand, when you choose a sole-proprietorship or corporation, it can give you a big loss if your Company goes bankrupt because it would also involve your and your partner’s personal assets and property.

Its Formation Is Fast and Simple

LLC formation is far more easy and quick than any of the other legal entities. It can roughly take one to two weeks to form your LLC.

You can either form an LLC easily by yourself or if you are too busy and don’t even have a minute to waste on it, then you can also hire someone for it as there are many top rated LLC registration service out there like Zenbussiness and LegalZoom that can get the whole work done for you.

No Restrictions on Ownerships

Unlike S-corporations and incorporations which have a limited number of partners allowed (no more than one hundred) and can only be owned by a US citizen.

LLC on the other hand does not come with any such restrictions on ownerships, almost anyone is allowed to form it, either a US citizen or not. Moreover, there is no defined number of partners, an LLC can have as many partners as you want.

About RJ Frometa

Head Honcho, Editor in Chief and writer here on VENTS. I don't like walking on the beach, but I love playing the guitar and geeking out about music. I am also a movie maniac and 6 hours sleeper.

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