Limited liability Company

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Limited Liability Company

Different from other business structures, a limited liability company has separate and

dissimilar legal rights and obligations. The most valuable thing about LLC is that its

members are not accounted for debt or liabilities of the company. Making it stand out from

the rest businesses structures LLC benefits is that it’s flexible, easy to change, and simple to

run. For instance, if the LLC owner separates his assets from the business, he should be

protected from the debts and liabilities. If the LLC is said to go bankrupt, the creditors can

only gather their debts from the assets of the business.

An S corporation is a business structure that has attractive tax benefits, and its

liabilities are protected with the corporation. S corporation is essential where businesses

are small and large as members may pay less on tax. S corporations are not entitled; hence

international revenue service manages taxation and prevents the company from double

taxation (Lux & Mclean 1998). Both business structures, the S corporation, and LLC are

obliged to taxation. Disparities occur in that an S corporation, taxes are lined down to

individuals while in LLC, the organization is taxed.

During business formation, it is essential to view taxation as it is considered as an

expense. From the case discussed above, it is crucial to forming an S corporation rather than an

LLC, as the taxes of the LLC, don’t favor individuals. Decision making may be critical, but

considering employee numbers and the business owner will help come to a decision

quickly.

The main advantage of both LLC and S corporation is that they offer limited liability

protection; hence it’s advisable to protect your assets by forming an LLC. With LLC being

flexible and easy to manage, many people are attracted to LLC (Koss, 2007). S corporation

has a vast advantage over LLC in that they can acquire funds from investors and other money

lending institutions.

Contrary S corporations’ members can receive dividends that, in return, lower their

tax billing. When it comes to management, LLC members are privileged to manage and run

the business compared to S corporation. It’s there essential when forming a business entity to

consider factors that affect the operations. One key element is taxation, such that how does

the tax affects both the business and the employee. Another factor is to consider your sources

of capital; they are your investments or from other investors. Management and ownership are

also keys in choosing the business structure you wish to approach based on your type of

business. With the ease of formation, it is better to go with a design that you are free

to establish.

References

Koss, A. M. (2007). Best practice guidance for angel groups–deal structure and

negotiation. Angel Capital Angel Educational Foundation,

http://www.angelcapitalassociation.org/data/Documents/Resources/AngelCapitalEducation/

ACEF_BEST_PRACTICES_Deal_Structuring. pdf.

Lux, M. S., & McLean, S. A. (1998). The IRS Clears the Air on S Corporation

Subsidiaries-Proposed Regulations under Code Sec. 1361 (b)(3). J. Passthrough Entities, 1,

29.