Benefits of Limited Liability Corporations & LLCs

Benefits of Limited Liability Corporations are manifold, especially for those small businesses and its shareholders, as opposed to general partnerships and sole proprietorships.

The major ones are,

Limited Liability (Corporations) LLC

Limited liability protection; it is in fact the biggest benefit incorporation offers to its owners. By limited liability protection, it is meant that the owners of the businesses won’t be personally liable for the losses (liabilities and debts) incurred in the business, and hence creditors cannot pursue any of the owner’s personal wealth (such car or home) to pay the debts. This must be read in the backdrop of the fact that in the case of general partnerships and sole proprietorships, the owners and businesses are assumed the same and hence they are legally liable to payback the debt even if it is done through the liquidation of their personal assets.

Unlimited Life and Credibility

Limited Liability Corporations have an unlimited life span that is independent of its shareholder’s. In other words, even if a shareholder sells his/her stock or dies at some point in time, still the corporation’s functions will not be affected in any way.

Credibility refers to the name and fame a corporation will have in the minds of its prospective customers, vendors, employees and partners. Incorporating a corporation helps in achieving this target faster. To convince others, there need to have a structure and position associated with the organization – sometimes called the corporate image.

Tax Advantages of LLCs

Another biggest allure to incorporating – its huge tax advantages – the prominent ones being the monthly health premium deductions, savings on self-employment taxes, since corporate earnings is not subject to Medicare taxes, social security, and worker’s compensation, and life insurance. Health insurance is virtually 100% tax deductible. A chartered accountant or a professional tax advisor could give the intricacies of corporate taxation.

Further, corporations have lesser or no restrictions in place that governs capital and operating losses. That is, practically they can carry losses backward for three years and forward for another 15 years if required, with lesser probability of an IRS audit. Sole proprietorship, on the other hand, have very stricter rules controlling it’s functioning and are prone to audits if it makes losses even for a year. Being caught red handed for fudging revenue records is the worst thing that can happen to a business, individual or institution.

Further, for corporations it is easier to raise capital through the sale of stocks. For them, it is easier to secure loans as well, since banks generally show a friendly attitude towards corporations when it comes to issue of loans.

Other benefits of Limited Liability Corporations include easy transferability of ownership (even though S Corporation have some exceptions), ease in soliciting investors to join the corporation (owing to the above mentioned credibility factor) and retirement benefits such as a 401(k), which can be established very quicker.

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