A limited liability company (or LLC) is the US Specific form of an entirely private limited business. It is basically a business structure that will combine the double taxation of sole proprieties or partnership and the limited liability of an entity. This enables the owner(s) of the company to be protected from the double taxation imposed by both the federal and state governments. It also permits the owner(s) of the company to use their personal assets in paying off debts, expenses and other liabilities of the business.
To become a Colorado LLC company, all the partners in the business must agree to create a “control account” or otherwise known as “the partnership”. In order to this, each partner must pay the appropriate fees as set by the law. Once all the fees are properly paid then the partners together own the business and it becomes a legal entity separate from their individual selves. Thus, all debts and other liabilities are only the responsibility of the company itself and not of the owners individually.
Limited Liability Companies also known as LLCs have gained a lot of popularity over the past few years because many businesses and individuals have realized its advantages. For instance, an owner of a sole proprietor business may be required to pay taxes on his personal assets in order to pay for the business’ expenses. However, in an LLC, these taxes are avoided because the owner is not personally liable for them. With an LLC, his personal assets will not be subject to any kind of double taxation. Also, since the assets of the LLC are not jointly held, the income and profits of the business will not be subject to double taxation.
As previously mentioned, limited liability companies are usually incorporated as a type of corporation, but there are other types that may be applicable to certain businesses. A partnership for instance will be taxed as a corporation and will be subjected to several kinds of taxes. Apart from that, the partners of the partnership will still be taxed as individual persons and will be subjected to the capital gains tax (CGT) on the share of the partnership’s capital. A sole proprietorship however will not be subjected to these kinds of taxes. This means that the LLC can enjoy some significant advantages when it comes to expanding and contracting their business structure.
The benefits of an LLC include the ability to shield profits and losses of the company from double taxation, lower corporate taxes and the advantage of limited liability. Because of this, it is often advised that limited liability company become members of different enterprises in order to fully protect themselves and avoid double taxation. It is also advisable that the LLC forms a general partnership with other small corporations to reduce their tax rate. Sharing the corporate shield, however, means that the partners of an LLC will still be subjected to all the corporate taxes on their personal income derived from work performed by their LLC.
An LLC is also advantageous to other small businesses as it allows them to benefit from certain tax benefits that are not available to corporations. For instance, in the tax code, there is a gifting provision that allows the owner of an LLC to receive a large sum of money out of the equity of the corporation. It is not uncommon for limited liability companies to issue more stock to their shareholders than they have actual ownership in the company itself. By paying this dividend, the shareholder does not have to pay capital gains taxes to the government. The reason why many businessmen prefer LLCs over other kinds of business structures is that they provide a much simpler way of doing business.