Though most of the Venture Capitals do not like to invest in a limited liability company. The main reason being LLCs do not offer specific classes of stock like preferred stock. That’s why VCs prefer C-corp businesses. But there are some significant advantages that entrepreneurs can get if they choose LLC as a start-up business. We will cover the benefits of registering an LLC for your start-up business.
1. You Can Avoid Double Taxation
If you choose LLC as your start-up business structure, then you will not have to pay taxes twice. Because a business formed under this structure is considered as a separate legal entity. The profits made by an LLC are equally divided across its co-owners/partners. On the other hand, C corporations will be taxed twice. Once, business taxes on the earnings made by them and also if it wants to share their profits across the investors who own their share. This simply does not apply to LLCs for the reason mentioned above. If you are willing to start an LLC in Delaware then you must follow all the steps followed by Delaware business entity search.
2. You Can Protect Your Personal Assets
The main advantage of forming an LLC is protecting one’s personal assets. Many entrepreneurs select an LLC for their start-ups because of the sole reason that the owner will have limited responsibility for their fresh business in case of lawsuits targeted towards their company. So, LLC is the ideal way to separate one’s personal assets from business assets.
3. LLCs Are Easier to Manage
Compared to a corporation, LLCs are very simple to establish and run. If you want to start a new business as a corporation then it will be necessary to appoint various positions like executives, boards of directors, and managers. This is simply not a case with limited liability companies as it is not required by law to appoint directors, managers, and officers for an LLC. Of Course, the LLC company can choose to have corporation-like management if the members are okay with it.
4. You can Make Changes Easily
Once your LLC is formed, it is very easy to appoint new partners for the company and transfer ownership to someone else. Managing an LLC business structure is very simple and relaxed compared to other businesses. LLCs don’t have strict rules and regulations except paying taxes on time. while corporations have many guidelines in place for limitations on transactions and the type of business they can conduct.
5. Business Founders Can Offset The Tax Loss From LLC
This benefit simply allows the owners to pay fewer taxes if the company is going through losses and losing money. It is simply called pass-through income. It simply means any profits or losses of an LLC can pass through the owner’s tax return every year. So when the company is making a profit, the taxes will be comparatively higher. But on the other hand, the taxes will be reduced if the company is having losses.
6. Most Startups Never Become Profitable
Harsh but true. There are many businesses that shut down without even having a single penny of profit. The prime examples are companies like Spotify and Uber. That’s why selecting a corporation as your startup could turn out to be a big blunder even if you are very confident in your business plan. Small start-ups can always choose LLC for their early days and later they always have an option to make a shift to C corporate.
7. You Can Easily Convert an LLC Into C-corp When The Time Comes
The main limitation any owner encounters with an LLC is that it cannot go public. The simple reason is that limited liability companies cannot do an IPO. That’s why if an LLC turns out to be successful and wants to go public in the future then it must be transformed into a C corporation first. And this could be done fairly easily which generally involves some tax implications.
Some entrepreneurs do not like the process of making a transformation from LLC to C corporation, especially if the future goal is going public with an IPO. That’s why they chose the C-corp structure so that going public would become an easy task. Sometimes this turns out to be a big mistake if the business never even reaches the IPO stage. So it is always a better option to form an LLC business structure for the initial days to save taxes. And later make a shift to C-corp to go public.
Conclusion
It is true that most startup businesses choose C corporations so that they can find investors easily. Corporation-based businesses also have an easy time building an IPO for going public. But choosing an LLC business structure is never a bad option considering the benefits that we mentioned. On top of that owners will always have an option to make a shift to the Corporation structure and have an IPO when the right time comes.