Why Are LLCs So Popular?

Limited Liability Companies, also known as LLCs, have become a very popular form of business entity in Texas for several reasons.

One reason is that a single member, member managed LLC is very easy for tax purposes.  Unless you select otherwise, it is taxed as a disregarded entity, so taxes are paid just like you were a sole proprietor.  The business profit is counted as your own personal income, and you just prepare a personal tax return as usual.  (If there is more than one member, you will need to prepare a partnership tax return, and the income shown on the Schedule K will be listed as income on your personal tax return. Again, unless you select otherwise, it is treated as a pass through entity, and the profits are passed through to the members, just like a partnership.)  While you do need to file a margin tax return with the state, most small businesses only need to file a no tax due return.

Another big benefit of an LLC is that it protects its members from personal liability for business debt.  That means that if you have not personally guaranteed a debt, such as for an office lease, only the assets of the LLC will be liable to pay the business debts, and not the individual members.  (This protection will not protect or shield a member from their own personal malpractice, however.)

The LLC form is also beneficial in that it generally will protect the LLC assets from the personal debts of its members.  If someone took a personal judgment against one of the members of the LLC, the judgment creditor could not just take the members LLC interest and take control of the business.  Judgment creditors are only entitled to take an assignment interest in the LLC, which means that if any money is paid out, they can hold their hand out to get some, but they have no right of management and control, and cannot force a distribution.  It is only an economic interest they can hold.

Another reason that a single member, member managed LLC is so popular is that it is the easiest business form to maintain.  It does not require the same formality of conducting annual meetings and maintaining annual minutes, like a corporation requires.  While it is not technically required, our office always recommends that minutes be maintained, even if they are rather informal.  By maintaining minutes, it shows that you recognize that the entity is a separate “person” from you under state law.

If you would like to see a comparison between LLCs and corporations, click here.

If you have questions about LLC’s, please give us a call or email.

4 comments to Why Are LLCs So Popular?

  • Aron D House

    If I have an established LLC that hasn’t been used for anything for a year, can I start a business with a different name under the LLC? If so, How?

  • Michell Bradie

    Yes, you probably can. However, you should probably speak with an attorney to make sure that you do things properly.

  • Fidelis

    I’m considering either to register an LLC or a CORPORATION
    since we had in mind to go public in the near future or sell shares.
    Looking at adding 8 more Directors to make 9 Directors.
    Is an LLC really a type of Partnership? If yes, what are the advantages and disadvantages in terms of
    1. Taxation: (Federal and States)
    2. Coverage: Is an LLC recognized outside of the United States
    3. Complexity: with more Directors being added, does it become more complex to operate or run or manage?
    4. Documentations: an LLC or Corporation, which one requires more documentations? Which one is more complex to manage especially with multiple number of Directors?
    5. Profits Sharing: How is profit sharing administered to the Board Of Directors in both LLC and CORPORATION?
    These and any other answers necessary to broaden my horizon regarding my interest will be highly appreciated.
    Thanks
    Fidelis

  • Michell Bradie

    I would recommend that you sit down with an attorney to discuss the specific needs of your business, rather than trying to rely on general information that can be provided by a website that is meant to provide general information, and not specific legal advice and direction. It sounds like you are about to do some very exciting things. Congratulations! However, you really do need to make sure that you are given specific guidance for your particular situation. Good luck with it!

Leave a Reply

 

 

 

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>