Deciding to own your business as an LLC (Limited Liability Company) is an essential step in your entrepreneurial journey. However, it can be intimidating if this is your first business venture.
If you are thinking about starting a new LLC Virginia, you might want to read about the top seven benefits of incorporating it. Finding the best structure for your business depends on your industry, location, and goals.
This article will help you make the right decision.
Personal Asset Protection
A significant benefit of an LLC is limiting your liability. When you operate as a sole proprietor, own an unincorporated business, or use your name as your business, you are personally liable for the debts and liabilities of your company.
If someone sues your business and wins a judgment against it, they can personally come after you to collect funds. An LLC limits the liability that you are accountable for.
Separate Legal Entity
An LLC is an individual legal entity from its owner(s). By operating as an LLC, your company becomes a distinct entity from you, the owner. Therefore, when someone sues your LLC and wins a settlement from it, they cannot take personal money from you to pay as compensation.
It does not protect you from losing the business itself or selling it in foreclosure to pay off debt. However, having an LLC in Virginia can make suing your company seem less attractive to your adversaries. In addition, you’ll have a separate tax ID number and can open business bank accounts in the company name.
Pass-through Taxation
An LLC files its taxes as a pass-through entity, which means that the company does not pay corporate income taxes on profits; instead, all profits and losses “pass-through” to the owners’ tax returns. Therefore, all income from an LLC is taxed at the individual owner level. In this case, “owners” means you and your co-owner(s), if any.
Suppose a husband and wife own a Virginia single-member LLC together as business partners – each of them reports their share of the business’s profits or losses on their individual tax returns. LLC taxes are paid based on each owner’s income tax rates.
Flexibility in Ownership
A company has the flexibility to choose how you structure your company when you form an LLC —as a single member or multiple members. You can also include your spouse in the business if you choose.
LLC Operating Agreement
An LLC is a corporate body separate from its members. The LLC owners are called members, not shareholders. With this in mind, it is essential to have an operating agreement before incorporating your business.
The operating agreement sets out how business decisions are made and documents the rights and responsibilities of the business owners. The members can determine how much control each member has by assigning a value to their ownership interest through membership percentages.
Transferability of Ownership Interests
An LLC allows you to transfer your ownership or membership interests freely without affecting the company’s existence—as long as the buyer(s) are qualified to own an interest in the company.
It is not the case with corporations, which require board approval before transferring ownership interests.
No Bylaws
Unlike a corporation that must have bylaws, an LLC can operate without them as long as it has an operating agreement. Some businesses opt to draft bylaws in addition to the operating agreement, but this is not always necessary.
You can always amend or draft bylaws later if your business grows and you need to formalize the structure.
Final Thoughts
Whether you are building or looking to expand your business, an LLC offers many benefits.
This type of business entity is a popular choice for small businesses or startups that want to protect their personal properties from debts and legal judgments. You can incorporate a Virginia LLC online for as low as $99. It will help you avoid unnecessary legal fees and protect your personal assets. You’ll have complete control over business decisions with no board approval requirements.
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