Why Are LLCs So Popular?

by | Mar 8, 2022 | Business Law

There are two main reasons why a particular entity is chosen, be it an LLC, S-Corporation, C-Corporation, or some form of partnership: tax treatment of profits and risk management. Other considerations may weigh in, but these are usually top of mind for most new business owners.

Limited Liability Companies (LLCs) or Professional Limited Liability Companies (PLLCs, used by doctors, attorneys, and other professionals) have become one of the most commonly utilized business formation structures in the past decade or more, mainly because they allow for pass-through taxation to the members (each member’s share of the profits are taxed only one time and at their individual taxpayer rate), and it shields the members from a significant amount of liability.

Members to an LLC contribute money to the company to get it started. The risk they take on, in the event the LLC is sued at a later date, is limited to the amount of money they invested in the company. So, for example, if you start a business and invest $20,000 of your own personal funds into the venture, and later the company loses a lawsuit with a judgment of $1,000,000 awarded against it, you will only personally be responsible for $20,000 of that judgment, even if the company doesn’t have the assets to pay the judgment in full.

All members of an LLC will receive a K-1 form to file with their taxes. Your accountant will know what to do with it. Essentially, most losses can be taken on your personal return, and any profits will be taken as well. Any depreciation associated with the business can be passed on to your personal return as well.

At Vermillion Law we can help you form your business, whether you choose to use an LLC or otherwise, in both Tennessee and Florida. Please complete our INTAKE FORM, and we will get with you within 24 hours, Monday-Friday.