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Why is LLC popular with small-business owners?

On Behalf of | Apr 13, 2023 | Business & Commercial Law |

Businesses must be meticulous when choosing their entity as it plays a substantial role in the company’s success. Evidently, most small businesses have different priorities and capacities than other types of companies, which may work well as corporations. Because of this, laws made available the entity option limited liability company or LLC. But what exactly makes an LLC attractive to small-business owners?

Limited personal liability

One of the attractive features of an LLC is that its members, partners and investors have limited personal liability when it comes to the company’s debts and liabilities. This is because the business is a separate entity from the owners. Therefore, creditors cannot go after the members’ or investors’ personal assets to cover the company’s debts. This feature is actually similar to that of a corporation.

No double taxation

In an LLC, members may choose not to pay the company’s federal taxes directly. Instead, they report the business profits and losses on their personal income tax returns. By doing so, they are only taxed once and avoid double taxation, unlike corporations. This feature is similar to that of partnerships.

These benefits are not absolute

Business owners considering LLC as their entity should know that while the mentioned features are beneficial, they are not totally free from claims. Creditors can go after the LLC’s members if there is fraud or the business fails to meet the legal requirements.

Align your business priority

While many consider an LLC the best option for their Arizona business, it is still best for owners to check their company’s needs, goals and priorities to ensure that they align with the features of an LLC. Otherwise, they might have to continue researching the proper entity for them.