Business formation and structures: Limited liability companies

On Behalf of | Oct 3, 2022 | Business & Commercial Law

When forming a business, one of the most important steps you take is choosing a business structure. What you pick has many legal and financial implications.

There are many different structures, each with its own advantages and disadvantages. An option that many small business owners choose is the limited liability company.

What is an LLC?

LLCs are a flexible, hybrid structure that incorporates elements of corporations, sole proprietorships and partnerships. They are attractive because they involve come with tax perks and shield the owners from personal liability.

What personal liability protection do LLCs offer?

This structure provides the same protection as a corporation has, but excludes the high amount of paperwork. When an LLC faces a lawsuit, the owner’s personal possessions remain protected; the owner does not have to compensate for damages the business is unable to cover from his or her own assets.

What tax advantages do LLCs offer?

Business owners with LLCs have a great deal of flexibility when it comes to tax classification. Essentially, their business may count as a partnership, a corporation or even part of the owner’s own personal income tax return. How the entrepreneur chooses to file affects how the IRS treats the business.

Whether or not an LLC is right for a business owner depends on his or her circumstances. It can be more expensive to start than a sole proprietorship, for instance. However, it does offer benefits such as flexibility and significant personal liability protection, and any size business may be an LLC. Individuals wanting to form an LLC must do so through the Arizona Corporation Commission.