What Is An LLC ? …watch the video and get some information, however remember that with our auction access programs, you are by default a 1099 Contractor with the Dealership you are signed up with. You can get ($150-$350) an LLC, but probably don’t need to spend that money…until you are making money and looking to expand into a commercial office or a create a more public footprint for your business (advertising /marketing costs/etc.).
A Limited Liability Company, or an LLC, is a relatively new business structure, that first appeared in Wyoming in 1977, and is now recognized by every State’s statute and the IRS.
An LLC is neither a partnership nor a corporation, but a distinct type of business structure that offers an alternative to those two traditional entities by combining the corporate advantages of limited liability with the advantages of pass-through taxation usually associated with partnerships.
Limited Liability Companies are becoming more and more popular, and it is easy to see why. In addition to combining the best features of partnerships and corporations, LLCs avoid the main disadvantages of both of those business structures.
Limited liability companies are much more flexible and require less ongoing paperwork than corporations to maintain them, while avoiding the dangers of personal liability that come with the partnership. Some examples of famous LLCs may surprise you – both Amazon and Chrysler are organized as limited liability companies.
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Ownership of an LLC
Owners of an LLC are called “members”. Since most states do not restrict ownership, members may be individuals, corporations, and other LLCs – domestic or foreign. LLCs can generally have an unlimited number of members. Most states also permit, so-called, “single member” LLCs, those having only one owner.
Members in an LLC are analogous to partners in a partnership or shareholders in a corporation, depending on how the LLC is managed. A member will more closely resemble a shareholder if an LLC chooses to be managed by a manager or several managers, because then those members who are not managers will not participate in day-to-day management of the company. If an LLC does not choose to utilize managers, then the members will closely resemble partners because they will have a direct say in the decision-making of the company.
Single- vs. Multiple-Member LLC
An LLC owner by more than one individual or entity is called a Multiple-Member LLC. All states also permit Single-Member LLCs – those having only one owner (member). By default, a Single-Member LLC is taxed as a sole proprietorship (in other words, treated as “disregarded entity” by the IRS), while a Multiple-Member LLC by default is taxed as a partnership.
Advantages of Forming LLC:
LLC is a relatively new type of business structure that combines the best features of the corporation with those of the sole proprietorship or partnership. An LLC has many advantages and benefits which cannot be enjoyed together in any other type of business.
Personal Liability Protection:
An LLC is an entity separate from its owners. Being a legally distinct entity, the personal assets of each owner (such as a home, a car or a personal bank account) are not reachable by business creditors. An LLC member’s liability is generally limited to the amount of money that person has invested in the LLC. Thus, LLC members are offered the same limited liability protection as the shareholders in a corporation.
Tax Advantage:
LLCs allow for pass-through taxation, and that advantage is one of the biggest reasons for the recent popularity of the LLCs. Pass-through taxation means that earnings of an LLC are taxed only once, basically being treated like the earnings from a partnership, a sole proprietorship or an S-Corporation. While neither partnerships nor sole proprietorships also offer limited liability protection, an S-Corporation comes the closest to an LLC. However, an S-Corporation is a much more restrictive business structure that is harder to maintain.
Ease of Transfer:
With an LLC it is easy to sell the ownership interests to third parties without disrupting the continued operation of the business. As a comparison, selling interests in a sole proprietorship or general partnership requires much more time and effort. An owner must individually transfer assets, business licenses, bank accounts, permits and other legal documentation. Ownership transfers in S-Corporations are also burdened with many restrictions.
No Ownership Restrictions:
LLCs have no restriction on the number or types of owners. By comparison, S-Corporations cannot have more than 100 stockholders, and each must be a resident or a citizen of the United States. None of these restrictions apply to an LLC.
Easier to Raise Capital:
LLCs allow for many ways to raise capital. An LLC can admit new members by selling membership interests or even create a new class of members with different voting or profit-sharing characteristics.
Greater Credibility:
As a registered LLC, a business will enjoy legitimacy and greater credibility when dealing with other companies, banks and potential partners or investors than would, for example, a sole proprietor. An LLC is recognized as a legitimate company and not as an individual engaging in business.
Flexible Management and Ownership Structure:
Like general partnerships, LLCs are free to establish any organizational structure agreed upon by the members. Thus, profit interests may be separated from voting interests. This offers the owners the ultimate flexibility to separate or combine the interests of the investors into the company and of the people actually running the day-to-day operations.
Disclaimer: I am not a financial advisor, so please review all of this advice with your CFP or financial advisor first.
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