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5 Benefits of Forming an LLC in California

5 Benefits of Forming an LLC in California

An LLC is a limited liability corporation which in essence is an organizational structure that new businesses form when they first start out. This structure is created with the idea to lend protection to the owners (or members) from any personal responsibility on the debts or liabilities of the business itself.

Many new businesses first start out by opting for this business structure due to its many advantages. Let us cover these important benefits below.

Personal Asset Protection 

The foremost benefit of forming an LLC is the protection that it gives to the owners of the business. Owners of an LLC are referred to as ‘members’ and the best part of forming this business structure is that the personal assets of the owners stays safe from any debt or credit that the business entity is under. 

The organization is a different organism from the owners and therefore the onus of the liabilities falls on the shoulders of the business alone. And has to be paid via the bank account associated with the dealings of the business and not from the personal accounts of the owners. 

Multi Member Ownership 

There is no set limit on the number of members that can own an LLC corporation. Which means that people can easily become shareholders in an LLC given the opportunity. All owners thus share the responsibilities making it a business structure that equally divides responsibility among the members. 

Enhanced Credibility 

An LLC is usually considered to be the most credible business structure. This added credibility comes with having a rather formal business structure as compared to other organizational structures like a sole proprietorship or partnership. With a credible name in the market the possibility of being successful increases manifold. And when an LLC is attached to the name then the belief of the customers and partners gets rooted in the business automatically.

Good Management 

Since the management of the LLC businesses is supervised by a board of directors and not the shareholders altogether. It then gives a sense of semblance to the business that is under so many owners. A board of a limited number of people running the company that usually consists of a good team of individuals, take the major decisions for the welfare and progress of the company as a whole. 

Pass Through Taxation

Pass Through Taxation

This is undoubtedly one of the most important benefits that forming an LLC gives to the owners. What is a pass through taxation? A pass through taxation is when the business earnings pass through the filter of the owner’s personal tax return. In simple words, it means that the profits that the company is earning will be taxed at the owner’s personal tax rates. This was done by the TCJA (Tax Cuts and Jobs Acts) of 2017 which made small reductions on the income tax rates for most individual tax brackets which in turn significantly reduced the income tax rate of the corporations.

Final Thoughts

These benefits of forming an LLC place the business entity at an advantageous position making it possible for them to achieve unlimited success. Of course applying for other important permits and licenses is required, be it the general business license or the Seller’s Permit but on the whole it is highly beneficial. Only after the proper procedure is carried out well can the business attain the goals that they have set for themselves. 

It is important to note that with the mentioned advantages there are certain disadvantages of forming an LLC including, the large cost of expenditure on the functioning of the structure and the disadvantages that the investment offers. But the pros largely outweigh the cons.