Forming an LLC(Limited Liability Company) limits the members’ (or owners’) personal liability for business actions. Members are liable, but usually only to the extent of their investment in the business. This means that member’s/owner’s personal assets cannot be used for settling business debts. This differs from a regular partnership, where all members or at least one is liable for company debts.
Limited liability companies are more simple to form and run than corporations. For example, a corporation requires a board of directors, officers, regular director’s meetings and shareholder’s meetings, but an LLC does not. It can be run day-to-day as though it were a partnership, yet it has has some of the key liability and tax protections of a corporation. Since there is no requirement for approval from a board before taking business action, LLC’s are much easier to run for business owners.
LLC’s are unique in that they have flexibility in how they operate. An LLC(Limited Liability Company), in its Operating Agreement, can decide to distribute profits in proportions other than investment percentages. In addition, one of the advantages of an LLC over an S Corp is that an LLC doesn’t have restrictions on the type and number of partners the way an S Corporation does. Members can even be foreign nationals or other companies, and there is no limit on the number of members.
One of the major benefits of a Limited Liability Company is that business profits are not separately federally taxed on top of the member’s taxes. The profits of the business passes through to the members, and is filed on each individual member’s tax return. Compare this to a C corporation, where the profits are taxed and then distributions are re-taxed on the individuals’ returns.
Because an LLC is a separate entity on its own, it, can apply for and build credit separately from the partners’ personal credit. This provides another great benefit to a limited liability company because it helps protects each member’s personal credit and makes bad personal credit less of an issue.
Although LLC’s are relatively new in many states of the US, they have been in operation overseas for over a century. Foreign investors are often more familiar and comfortable with the LLC structure. This can also be added to the benefits of a limited liability company. Also, because investing in an LLC is less imposing than bigger corporations, so they provide a great place for foreign investors to enter the U.S. market.