Four benefits of establishing a limited liability company in New York

Many who set up new businesses decide to establish limited liability companies due to the numerous benefits this formation type offers.

Based on data from 2012, Empire State Development reported there were 732,217 small businesses operating in the state of New York. One of the first things people must do when starting up a new company is to determine what formation type they will use. In order to help them determine whether establishing as a limited liability company is the right option for their business, it may help for owners to understand the benefits of this type of business entity.

Unlimited owners

Some business entity types place limitations on the number of owners a company may have. For example, a sole proprietorship is capped at one owner, while some corporation types may allow up to 75 owners. There are, however, no such restrictions placed on LLCs. Therefore, the owners, or members, may include anyone in the ownership of the company who they choose.

Sharing and allocating profits

Members are not permitted to pay themselves wages. However, they are entitled to share in the company's bottom-line profits. Unlike corporations, LLCs do not require a proportional relationship between members' income and their shares. This means that they may receive a share of profits that exceeds their ownership percentage and that each member does not have to have an equal share. Having this flexibility allows the owners of companies formed as LLCs to allocate their profits and losses based on their tax needs and operating agreements, among other factors.

Limits members' personal liability

With some other business entity types, the owners may be held personally liable for debts or civil judgments. LLCs provide a buffer between members and their companies. Shielding them from some personal liability, LLCs essentially block their personal holdings from their businesses' liabilities. Consequently, awards handed down in lawsuits and debt collections may not touch owners' personal assets.

Taxes

Compared to other business entities, the tax implications of LLCs may be less challenging to navigate. When an LLC is formed, the company itself does not pay taxes directly. Rather, the members report the business' losses and profits on their personal income taxes. This allows business owners to avoid the double taxation that may occur with other business types.

Taking steps to protect the future

When getting a new business up and running, there are a lot of things people in New York and elsewhere must do. Navigating the legalities of establishing their business entity and may be challenging for those not familiar with the associated processes, which may only add to their stresses. Therefore, those who are setting up a new business may find it helpful to consult with an attorney. A lawyer may help them determine the best course of action for their circumstances, and go over other dispute prevention options with them.