Many business owners face the decision of whether to remain a sole proprietor or incorporate, and if they incorporate, whether to create an LLC, S-Corp, C-Corp or something else. Deciding on a Limited Liability Company, or LLC, is most common. Here are some reasons why it’s a popular approach.
You enjoy a powerful degree of protection from liability as an LLC. Common exceptions come if you commit gross negligence or a crime like fraud, or secure business loans using your personal assets. In other words, the corporation is liable for its debts and legal liabilities and you generally are not.
Formation and filings are easy
The amount of paperwork required to create and maintain an LLC is small compared with other kinds of corporations. To form an LLC in Oregon, a small fee and a relatively simple form is all that’s needed. Other kinds corporations often require an annual meetings, reports and fees, which may be a waste of time, especially if you’re the only member of the LLC.
You’ll find Oregon’s Articles of Organizing form immediately presents you with decisions with possibly uncertain consequences. Especially if the business is a one-person organization, it’s a good idea to consult an attorney to get the business started on a strong footing. Note also that the LLC’s ease can lull you into a “set it and forget it” mindset.
In other forms of corporations, owners/shareholders pay taxes on the earnings of the corporation and then pay taxes again on dividends, for a double taxation. In contrast, LLC are “pass-through” entities, meaning that the profits (and losses) immediately belong to you, the member of the LLC. Consider professional assistance, especially if your LLC has more than one member, and given that there are multiple options for managing the taxes owed by LLCs.
LLCs can distribute profits to owners in a wide variety of ways to suit the circumstances. There may be many reasons why one owner may receive a larger or smaller share of the profits, such as early sweat equity or greater risk. LLCs are not bound to a fixed formula.
Also, unlike some other forms of corporations, an LLC can have an unlimited number of owners and these shareholders can be foreign to Oregon or the United States.
And needless to say, if you are the sole member of the LLC, your flexibility is even greater.