Before you register and launch your business, you must decide on the best structure for your needs. That said, there are different kinds of business structures you can choose from. That’s a sole proprietorship, partnership, corporation, or limited liability company. However, understanding the benefits of a limited liability company will help you decide whether that’s the best fit for you instead of other business structures.
So, if you’re looking to launch your business and enter the entrepreneurial world, stick here for a few minutes. Why? Because you’re going to learn some advantages of registering your business as a limited liability company.
Besides, you’ll learn simple steps you can follow when registering your limited liability company. But before that, it’d be a good idea first to understand what a limited liability business is. Read on to get enlightened.
What Is A Limited Liability Company?
A limited liability company is a business structure limited by shares. In other words, members of a limited liability company are personally liable for its debts and other liabilities. However, how much each member is liable to pay depends on their shares. For instance, if a member holds 10% shares in a limited liability business, such a member will be required to settle liabilities equivalent to 10% of the total debts in case the company is to be liquidated.
That said, if you’re looking to launch a limited liability business, you can visit sites like start-filing.com or other similar sites to get more information. Such sites enable entrepreneurs to meet online and share helpful ideas about company formations.
Why Register Your Business As A Limited Liability Company?
Although you can register your business in any other structure of your desire, you can reap more benefits by registering it as a limited liability company. Some of these benefits include:
- Be Your Own Boss
Running a limited liability company is one of the best ways to control your schedules, make your own decisions and control your destiny. This is because the law can allow you to launch your business as an owner limited liability company. This means that you’re the only member of your business. Therefore, you can make your business decisions without consulting anyone else as you could do in a partnership or corporation.
Although a one-member limited liability business operates as a sole proprietor company, it has more benefits. For instance, in a sole trader business, it’s not possible to separate the owner from the business. So, the owner is 100% personally liable for the debts of the business.
On the other hand, in a limited liability company, the owner is liable to the extent of their shareholding. So, the private assets of such a member can’t be used to settle for the business debts. This is because a limited liability company has a legal personality in the eyes of the law. Therefore, such a company is a separate entity from the owner and should pay for its debts.
- Avoid Double Taxation
Are you looking to boost the profits of your business and increase your return on investment? If your answer is yes, then you may want to register your business as a limited liability company. This is because registering your business as a limited liability company allows you to avoid double taxation, thus boosting your income.
On the other side, if you register your business in other structures, you might be liable to pay tax twice. For instance, when you register your business as a corporation, you’ll be forced to pay tax twice. You’ll need to personally submit tax from your annual dividends, and your business will pay a corporation tax to the government out of its annual profits.
However, the rate of a corporation tax varies from state to state. Besides, a corporation tax rate for a resident company can differ from that of a non-resident company.
That said, you can avoid double taxation by registering your business as a limited liability company. This is possible because a limited liability business isn’t taxed. Only its members’ incomes or share of profits are taxed.
- Fewer Formalities
Registering your business as a limited liability company is the way to go if you want to promote your flexibility. This is because a limited liability business is less formal than other structures. For instance, corporations have fixed management structures consisting of a board of directors, top-level management, middle-level management, and junior staff.
Besides, members of a corporation must meet annually to deliberate on business issues like electing company auditors and directors. Also, such members can be forced to meet before the annual general meeting to discuss an important matter that can’t wait till the next annual general meeting.
On the other hand, a limited liability company doesn’t have such a formal structure. So, its members have more flexibility in making decisions. Besides, the law doesn’t require limited liability company members to hold annual or regular meetings.
- Flexibility In Profit Distribution
One of the main reasons members come together to start a limited liability business is to make a profit and share it among themselves. That said, the share of profit of each member is determined by the pre-determined profit and loss sharing ratio.
The profit and loss sharing ratio is usually calculated on the amount of capital contributed by each member. So, as long as the business performs well, each member is guaranteed to pocket some profits every year.
On the other hand, corporations aren’t flexible when it comes to profit distributions. This is because members of corporations are paid dividends out of business profits which directors usually determine.
That said, it’s usually the company directors who decide whether or not to declare dividends. So, it’s not certain that members or shareholders will get any return each year out of their investment.
Besides, even when directors declare dividends, preference shareholders are given the first priority over the ordinary shareholders. Ordinary shareholders get dividends only after preference shareholders. So, if nothing remains after preference shareholders take their share, then ordinary shareholders go home empty-handed.
How Can You Register A Limited Liability Company?
If you’re convinced about registering your business as a limited liability company, you need to understand which steps to follow. That said, here are important steps to consider when registering your limited liability business.
- Choose A Business Name
Before you launch your business, the law requires you to register your company name with the state or registrar of companies. However, to do this, you first need to select a business name. That said, a business name is a title your business is known by. This can be your name or something. However, it should have the words limited liability company or the acronym LLC at the end. It’d be a good idea to register your business with a unique name.
Although some states don’t prohibit two companies from registering their business with a similar name, finding a unique name helps differentiate your firms from others in the market. This is important, especially when it comes to settling liabilities. Therefore, your business won’t become liable for another company’s mistakes.
- Reserve Your Name
Now that you’ve got your preferred name in your mind, you need to preserve it with the registrar of companies. This ensures that no other person can register their businesses with your proposed name. However, you must pay some fee to help reserve your name.
Besides, it’s good to note that the company name reservation is temporary. So, another person can register their business with your proposed name upon the expiry of the reservation period.
- Prepare Operating Agreement
The next step after reserving your business name is to prepare an operating agreement. This is a written document explaining how the business will be operated. For instance, it explains each member’s rights, duties, and obligations. That said, having an operating agreement helps avoid disagreements amongst members in the future.
- File Formation Documents
To allow the registrar of companies to register your business, you should file all the necessary limited liability formation documents. Such documents include a memorandum of association, articles of association, prospectus statement, copy of members’ agreements, if any, and statutory declaration form.
Apart from that, you must include information such as your business location, the purpose of the business, and physical address in your incorporation documents.
Upon receiving your limited liability formation documents, the state can either approve or reject your request. If approved, the registrar of companies will give you a business master license. This license shows that your business is legally incorporated and can operate the business in the stated state. Besides, such a license can enable you to obtain an employer identification number and open a bank account.
- Seek Other Permits
After registering your business and obtaining a master’s license, you need other permits to commence your operations. However, this depends on the type of your business. In other words, the type of permit varies from one kind of business to another. For instance, a permit to operate a jewelry shop is different from that of a fashion shop. Now after seeking all the relevant licenses and permits, you can launch your business.
As you’ve seen above, registering your business as a limited liability company can have more benefits than other forms of company structures. These include avoiding double taxation, requiring fewer formalities, and flexibility in profit distribution.
Before downloading the canvas, we would like to invite you to our newsletter, from time-to-time we will send you curated content about business strategy