Those who operate a business with exposure to liability may wish to consider the LLC structure. Sole proprietors or companies with many owners can utilize this type of business structure. One of the main benefits of such a business structure is the limited liability from lawsuits that it provides to its owners. Another reason to form a limited liability company is that it can be taxed in different ways.
Sole proprietors and partnerships can obtain limited liability and keep their current tax standing with the IRS. As the business grows, it can quickly switch to being taxed as an s-corporation or c-corporation without having to create another company. Regardless of how the company elects to be taxed, the profits are generally passed down from the company to its owners for tax purposes.
Forming an LLC is generally the right decision for a business owner who believes that his or her company will grow over time. The owner or owners can start the company without having to worry as much about liability issues that could derail their personal finances and the company's finances. As this type of company can change its tax structure in a relatively fluid manner, it may be worthwhile to choose this structure for companies looking to be as tax-efficient as possible.
Business owners who are looking to limit their liability may want to form a LLC. With the help of a business planning attorney, it may be possible to create business documents that adhere to state law while also meeting a company's unique needs. These documents may be legally binding and may be written in a way that offers the right mix of flexibility and rigidity to allow the business to be stable yet fluid enough to work around unexpected challenges.
Source: The Valley Business Journal, "Why Operate your Business as a Limited Liability Company (LLC)?", Esther Phahla, October 03, 2014