When it comes to starting a business, many people opt for LLCs. There are many things that are important to know if you want to create an LLC. People often assume that the same rules apply whether you want to form a corporation or start an LLC, but that’s simply not the case. Here are some common myths about how to form an LLC.
Myth: It’s always a good idea for an existing corporation to convert to an LLC.
It’s unclear where or how this myth originated, but it’s definitely not true. In most cases, converting to an LLC is expensive and doesn’t offer many additional benefits that a corporation does not. Successful conversions generally require the assistance of lawyers and accountants, and most of the time, the conversion triggers taxes that otherwise would not be owed.
Myth: LLCs are like corporations, but better.
Perhaps it’s the name — limited liability company — that implies additional benefits over corporations, but the truth is, LLCs do not provide any extra protection. The main difference involves taxes: LLCs are generally taxed under the tax rules for partnerships, while corporations are taxed using a separate set of rules specifically creates for corporations. Depending on the type of business, you may end up paying fewer taxes as a corporation than if you were to start an LLC from the existing business.
Myth: Your employees will benefit from owning a piece of the LLC.
This may sound like a good idea in theory, but in reality, making an employee a partial owners of an LLC usually causes unintended problems. LLC ownership can be expressed in two ways: by percentage or membership units, which are similar to shares of stock in a corporation. When an employee owns a piece of an LLC, they have to start filing quarterly estimated tax returns in addition to paying self-employment taxes. Since corporations operate under varying tax rules, employees of corporations can own stock without facing the same exact problems.
Myth: Forming an LLC is complicated and expensive.
This may be true for some people, but in the case of sole proprietorship, LLC conversion can be done without a lot of hassle because you can continue to file taxes on the same forms that you used when you were a sole proprietor.
Ultimately, forming an LLC is a great option for people whose businesses meet specific guidelines. For more information about how to form a corporation or an LLC, contact MyUSACorporation.com.