Advantages of LLCs

Limited Liability
Similar to corporations, members of LLCs enjoy protection from being personally liable for the debt responsibilities of their company. Members are only liable to the level of their investment basis within the company. This protection provides LLCs with great advantages over traditional and limited partnerships, which open up members to liability that can attach to their personal assets.

Income Distribution Flexibility
Members of LLCs can decide how to allocate their profits and losses, so long as they comply with IRS rules. Whereas stockholders in corporations must report their profits in proportion to their share of stock, LLC members can decide among themselves how to divide their income. It is important to note that this advantage can only be conferred through a custom operating agreement stating the intention of the LLC members.

Tax Advantages
LLCs can receive pass-through taxation by electing to be taxed as a partnership or sole proprietorship. This means that the LLC itself is not taxed. Instead, the owners of the report their share of the company’s profits and losses on their individual income tax returns. Pass-through taxation simplifies ownership demands by eliminating the need for a separate corporate tax return. Owners of an LLC can also elect to be taxed as a C-corp or S-corp. Choosing a corporate tax structure can have advantages, but those depend on each owner’s unique financial goals.

Members of LLCs may deduct “normal and necessary expenses that are incurred during the normal operation of a business,” including vehicle expenses, travel, legal, and more fees, rent, and much more.

An LLC can also elect to be classified as a C-Corp or S-Corp. Through an S-Corp tax structure, members of an LLC can avoid the self-employment tax that is normally imposed on LLCs. However, there can be disadvantages for choosing this option. Whether this type of tax structure is right for your LLC will depend on your individual circumstances and goals.

Managerial Flexibility
LLCs can also have multiple classes of members, each with a different set of rights. This flexibility allows LLCs to easily take on passive investors who may not be interested in participating in the management of the company.

Unlike corporations, LLCs do not have to comply with burdensome formalities. LLCs are not legally required to have a board of directors or to regularly hold meetings and record what takes place.

No Ownership Restrictions
Any person or entity can have an ownership interest in an LLC. There is also no limit to the number of members that an LLC can have.

Privacy
The members of the LLC and the assets controlled by the LLC are not public information. If you want to operate your business discretely, an LLC is an excellent choice.

Credibility
Having a registered business for your company shows others that you are serious about holding yourself out as a professional

Business Name Protection
Once you file your Articles of Organization with the Colorado Secretary of State, your business name is made public and automatically puts others on notice. Your business name is your intellectual property and through additional steps you can prevent competitors in your industry from taking a similar name.