Starting your own company can be a great way to set up a business that will help you grow your income. It is especially true in today’s world, where unemployment is spiking, and jobs are becoming harder to find. Owning a business can allow you to make a successful venture that will last you for the rest of your life. The corporate world has many different companies that were started by entrepreneurs, and some of these businesses managed to grow into massive brands that are incredibly successful in their fields.
However, one of the risks that you take when you start any company is the risk of failing. Unfortunately, it’s impossible to map each aspect of your company's journey, so you’re bound to make a few mistakes now and again. Although it is a given fact that many risks are associated with company ownership, if you can put in the work to transform your company and make it successful, then you’ll have a fantastic business that you can use for the rest of your life.
One method that is useful for reducing your company’s damage if things don’t work out is looking into a business formation technique known as an LLC. If you’re looking for a way to get into business without having to worry about risking everything, then you might want to form an LLC. But what exactly is an LLC, and how useful is it? We know that it can be tough to understand all the complexities associated with this setup. But don’t fret, because you’re in the right place. In this blog, we’ll tell you everything you should know about forming an LLC, and we’ll also clear up some of the most frequently asked questions regarding the same. Read on to find out more:
What Does LLC Stand For?
The term LLC stands for Limited Liability Company. Its name gives you a pretty good summary of its primary purpose. Its owner doesn’t own a business that is an LLB in the same way as a corporation. Instead, this company is a part of another business. When a corporation incorporates itself and becomes an LLC, it forms a partnership with the larger company. Its partnership is based on a corporate agreement that is made between an LLC and its head company. Therefore, these companies’ owners need to worry about fewer liabilities since they aren’t their primary owners. LLC owners are members of the larger corporation, although they still have the power to make all of the decisions in their company.
Benefits of an LLC:
An LLC can be a tremendous asset to a company looking to dip its toes into business without risking too much. There are a lot of benefits that an LLC can provide, but we’ve picked out the four main advantages of an LLC:
● Less liability for the company: When you form or incorporate your company into an LLC, your company becomes a part of this large organization. Thus they will take on any extra expenses that the LLC might have. If a corporation faces significant losses and does not have any funds available, then the payment burden usually falls on the owner. Forming an LLC means that you are in a partnership with another company, and thus you do not have to dip into your account to pay off any extra expenses. Thus an LLC provides a safety net in case things go wrong.
● More flexibility in the workplace: Corporate structures are formed in a specific manner. It is because there are individual requirements that all corporations need to fulfill. The owner and the employees all have roles that are specially designed for them. Corporations need to hold regular meetings with shareholders and their staff to discuss certain aspects of the company. Additionally, they need to have a management board that is responsible for overseeing the company. On the other hand, LLCs don’t need to do this, and they can simply organize their company however they want.
● International individuals can set up an LLC: One of the main reasons international owners use an LLC is that no restrictions prevent a Non-US citizen from starting an LLC. It gives you the ability to form a company in the US from anywhere in the world.
● Pass-through taxation: It is one of the main features of an LLC. An LLC is owned by the corporation that they have formed a partnership. Thus an LLC doesn’t need to pay the same type of taxes that a corporation does. They can choose to add these corporate taxes into their taxes, which means that they only have a single layer of taxes to complete. It will lessen your paperwork, and it will also make it easier for you to manage your company’s budget.
Disadvantages of an LLC:
If you want to form an LLC, you will have to look at all its disadvantages. Keep in mind that the list that we’ve given includes the main downsides of an LLC, and you’ll have to do more research to get a clearer picture:
● The cost of starting an LLC is higher: When you form an LLC, you’re essentially becoming a member of a specific company. It means that you’ll need to do a ton of prior research before you start your company.
● Fewer corporate-related benefits: There are certain perks like medical reimbursement, payment, and some insurance-related bonuses that count into the corporate tax. If there are no corporate taxes, then some of these costs can get added to your business costs.
● Tax rates can be higher than the corporate rates: Some LLC owners will need to pay additional taxes because individual taxes are higher for an LLC owner. One of the taxes that are included in this area is the self-employment tax. There are individual states which also have specific taxes for an LLC business. Although it’s much easier to run an LLC, the costs are a bit higher.
LLC vs. Corporations: How do You Decide Which to Pick?
So what’s the difference between forming an LLC and making your corporation? Additionally, which of these two options are better? The answer to this question is too complex because of the nature of this area of business. Both of these businesses have their positives and negatives, so you’ll have to consider several different factors before you make your choice.
Now, the main difference between these two is that LLC gives you the ability to have a bit more flexibility in your company, and you’ll also have protection from liabilities. It means that an LLC is an option that comes with the least risk. Furthermore, an LLC company doesn’t have all of the additional paperwork that comes with owning a corporation. Now the tradeoff for this is that LLC companies cost more to start up, and in some cases, these companies might be paying higher taxes than other corporations.
Thus this choice depends on your goal for the business, as some companies are more risk-prone.
Can I Pay Myself From my LLC?
The answer to this question is yes, although it is a bit more tricky than it is in a regular corporation. When you’re dealing with an LLC, the company owner is just another member of the company, but they are in a position of power. Therefore, when you pay yourself, you’ll have to shell out a certain amount of self-employment taxes. Owners aren’t paid a salary like the other LLC members - instead, the owner can take a part of the wages from the funds that are allotted for the company. Additionally, you’ll be able to pay yourself an amount that you have agreed upon. In a corporation, owners can only be paid based on the amount that they put into the company, but an LLC doesn’t need to go by these rules.
Can an LLC Own Another LLC?
When you form an LLC, you're not giving up on your corporate status. It means that an LLC can own other LLCs without any issues. A single LLC can hold another LLC, or it can also have many different LLC businesses as part of the main LLC. Because of the benefits that an LLC allows its owner to have, some people even buy multiple LLC businesses. There is no limit to the amount of LLCs that you can hold, so this means that you can spread out your businesses over multiple LLCs to reduce risk.
Say, for instance, that you’ve got two companies and you’ve invested an equal number of funds into both of them. If one of these companies takes a massive hit and doesn’t have any funds, then you’ll have to pay off everything that the company owes from your pocket. It means that you might have to sell your other company to pay off the cost. However, within an LLC, you are protected, and therefore, you won’t need to spend your money.
Owning a company can be very risky if you’re not a hundred percent sure you’re going to succeed. That’s why it’s imperative to make the right choice when you’re forming a company. Ultimately the decision about whether or not to make an LLC comes down to personal preference. You need to be able to see what your company needs. Some things to think about when you make a choice are:
● What is the goal of the company? Do you intend it to be a long-term investment, or will you sell it after a while to gain a profit?
● Are there any significant risks that are present that would require the protection that an LLC offers?
● Do you have the ability to cover up the extra financial costs that come along with an LLC?
Answering these questions will help you make an informed choice. Remember that a decision like this needs a lot of research, so we recommend that you do as much as possible! We have a few other articles that might help you out and we're a company that specializes in LLC formation.
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