Benefits of an LLC (Limited Liability Company): What to Consider

A Limited Liability Company (LLC) is a popular and beneficial business structure. There are many LLC benefits. These include:

• limited liability protection
• flexibility in management and taxation options
• pass-through taxation

An LLC also helps owners better manage their finances, minimize liabilities, and maximize profits.

In this article, we’ll discuss the benefits of starting an LLC to help you decide if it's the right choice for your business, as well as how Wise Business can help.

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Table of Contents
What Are The Benefits Of An LLC? Cons Of Having An LLC Cool Things You Can Do With An LLC Important Things When Getting Your LLC Started

What Are The Benefits Of An LLC?

The advantages of an LLC are many, but here are some of the key LLC advantages to keep in mind when deciding on reasons to start an LLC.

Limited Liability Protection

Limited liability protection is one of the pros of LLC status for your business that leads many business owners to own an LLC. This means that if the business fails or experiences losses, the owner's assets are safe from creditors and legal judgments.

Creditors and legal judgments are bad for your business because they can put a strain on your finances. This makes it difficult to recover from losses. This type of protection is not available in other business structures, such as sole proprietorships or partnerships.

Flexible Management Options

An LLC allows owners to choose how they want to manage their company. An LLC can be managed by:

• its owner
• through managers (who may be members of the LLC)
• through a board of directors (if desired)

This flexibility gives owners more control over how their business is run. This makes it one of the most important LLC pros for consideration.

Taxation Options

When it comes to the advantages of a limited liability company, most people will highlight the benefits related to taxes. An LLC offers several taxation options, depending on the type of structure and number of members. Single-member LLCs can be taxed as sole proprietorships or partnerships. Multi-member LLCs, on the other hand, can choose to be taxed as a partnership or corporation.

This is huge as far as the benefits of being an LLC. This is because it allows the LLC to choose a tax structure that best fits their needs and makes for the least amount of hassle and fees.

Pass-Through Taxation

One of the main benefits of making yourself an LLC is pass-through taxation. Another type of corporation called a C Corporation has to deal with double taxation. This means that this type of business is taxed twice: once at the corporate level and again at the individual level.

An LLC with pass-through taxation doesn’t have to deal with all that. Instead, all profits are passed through directly to its owners and reported on their personal income tax returns. This reduces the overall tax burden for LLC owners.

Financial Management

An LLC can help with financial management by separating business finances from personal finances. This is one of the most important advantages of forming an LLC because it makes it easier to manage cash flow and keep accurate records of expenses and profits.

It also allows owners to more easily raise capital, take out loans, or make investments in their companies without putting their assets at risk. All of these benefits of opening an LLC in terms of financial management make it easier than ever to run your business.

These LLC pros are attractive, but what about the negative aspects? Let’s take a look at both the LLC benefits and disadvantages to ensure you’re making the best choice.

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Cons Of Having An LLC

Aside from the many pros of an LLC, there are also a few disadvantages to having one. Setting up an LLC usually requires more paperwork and fees compared to other business structures. This can make the process a hassle for some people.

An LLC is also subject to pass-through taxation. This means the profits are taxed at the owner’s individual income tax rate. This can be both a benefit and a disadvantage. It is a benefit because it allows owners to pay taxes only on what they make, but it can also be a disadvantage if the owner has high income tax rates.

Cool Things You Can Do With An LLC

Now that you know the benefits of creating an LLC, here are some of the coolest benefits of having an LLC.

Diversify Your Assets

An LLC allows you to separate personal and business assets. This can be beneficial for asset protection. This means if there are any legal issues or liabilities related to the business, they will not affect your assets in any way. This is one of the perks of having an LLC that business owners with multiple accounts and/or businesses love.

Defend Against Lawsuits

As an LLC owner, you are protected from personal liability for any debts or obligations of the company. This is in effect as long as the company is operated according to state law. This provides a layer of protection that sole proprietorships and partnerships do not have. You can learn more about laws related to LLCs at the IRS website.¹

Tax Advantages

An LLC offers pass-through taxation. This means that profits and losses are not taxed at the business level. Instead, they are reported on the owner’s personal tax returns and only taxed once.

This can result in significant savings for owners who have multiple businesses or investments, especially compared to C Corporations that have to deal with double taxation.

Attract Investors

An LLC is a great way to attract potential investors. This is because the business structure allows you to offer them equity in your company without having to give up control of it. Potential investors are also more likely to invest in LLCs because of the limited liability protection they offer them.

It's good to have investors in your company because they can provide valuable advice and insight, which can help you make important decisions.

Expand Operations

Most business owners start their venture hoping for growth. If your business is lucky enough to experience that, an LLC allows you to easily add new members or transfer ownership interests without making major changes to the structure of the company.

This is great because it allows for more control and flexibility in the future. It also means you won’t have to compromise your original values or have to make a lot of big changes quickly.

Important Things When Getting Your LLC Started

It’s easy to see why so many businesses are lured in by the benefits of setting up an LLC. But once it’s set up, you can’t just let it go. Here are some aspects to consider alongside the benefits of forming an LLC, and how to use an LLC to your advantage.

Business Account For Funds

When you have an LLC, it's important to keep your funds separate from personal finances. This means setting up a business bank account. You should be keeping all transactions related to the company in that account. This will help you maintain accurate financial records. It will also help protect yourself from legal issues that can arise when mixing personal and business funds.

However, banks can often come with lots of hassles. This can include unspecified fees and difficulty finding an ATM. That’s where alternatives like Wise Business can help.

Wise Business

If you’re looking for a safe and savvy option for your business account, look no further than Wise Business.

Wise is a banking alternative that helps millions of customers move their funds around the globe. Sole proprietors in the US can start using Wise Business at no cost with no load requirements and minimal fees.

They also have the option of using our business debit card for purchases and withdrawals wherever they go. You can easily set spending limits and track purchases with this card to ensure your LLC’s funds are safe as well.

Speaking of travel, the main benefit of Wise is and always will be our global flexibility. With over 40 currencies in over 70 countries available, you can send and receive payments around the world at low cost.

Some other features Wise Business users love
Make purchases or pay your international team at low rates (as low as 0.43%)
Get paid without the fees in GBP, USD, EUR, AUD, CAD after a one-time fee
Account Software Integration: QuickBooks, Xero, Sage, and Wave
Batch payments offer the chance to send up to 1000 invoices in a single click
The Most International Account: Hold 40+ currencies at once
Transparency: Wise Business is trying to get rid of all your business account fees
Most importantly, if you're sending international payouts, then Wise could help. We offer the mid-market exchange and transparent costs, which has attracted over 16 million users to hold, receive, and send money with Wise and save along the way

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Accounting Software

You'll need to keep track of all the financial information for your LLC. This could be done manually, but it's easier and more efficient to use accounting software. Accounting software will help you stay organized and on top of your finances. Plus, you can have important reports created quickly without having to manually enter data or crunch numbers.

Accounting software is also great for tracking expenses, invoices, and other business transactions. It’s hard to keep everything at the front of your mind when running a business, so why not automate some of the processes?

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Getting The Right Documentation

You should get the right documentation for your LLC, such as an operating agreement and other important documents. An operating agreement is a binding contract between members of the LLC that outlines roles and expectations. This document will help you avoid potential conflicts among owners or partners in the future.

The main document the Internal Revenue Service (IRS) needs for an LLC is called Form 8832, Entity Classification Election. You can learn more about this form and how to classify your business as an LLC at the IRS website.¹

How Will You Receive Funds?

Whether you’re selling goods or services, your LLC should have a set process for receiving payments. This could be via credit or debit card, bank, or money transfer system. Choose the right payment processor and accounting system to suit the needs of your business. This will help make sure that all funds are properly recorded and deposited into your LLC’s bank account.

Debit Card Or Credit Card

Having a business credit card or debit card allows you to keep track of expenses. It also reduces the need for cash transactions and makes it easier to manage company finances.

The Wise Business debit card is a great option for easy spending without the hassle of dealing with a bank. It allows you to track spending and set limits easily to keep your company’s spending in check.

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Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks.

Sources:

1. IRS: “Limited Liability Company (LLC)” - https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc
2. Wise Trustpilot - https://www.trustpilot.com/review/wise.com