The LLC is a versatile legal entity for a business startup, both in Minnesota and nationwide. The first prerequisite to business formation exists: it provides the owners with limited liability and the all-critical separation of the business debts from the individual's personal assets. There is less paperwork needed to file and maintain an LLC as compared with a business corporation, including an S-Corporation.
Internal procedures such as annual meetings, shareholder meetings, creating a board of directors and keeping intricate minutes of all meetings are not generally required for the LLC. Thus, the simplicity of this legal structure is an attraction for most small business startups. The LLC also offers an important tax advantage, and that is that it may be run like an S-Corporation for federal income tax purposes.
The importance of that option is the ability to avoid double taxation and to run the company's profits or losses through the individual's personal income tax return. FICA, Medicare and similar requirements only apply to salaries and wages paid to employees. This method of treating personal taxes simplifies the procedures and provides tax savings in certain instances.
The LLC is guided by an Operating Agreement that designates responsibilities and roles of the members. It is important, however, to consult with an attorney versed and experienced in new business formations. There are too many options and considerations that come back to hurt a new business owner.
For a business startup in Minnesota, the advantage of having a business formation attorney assisting in the explanation of all options and consequences cannot be overstated. Special tax structure selections must be made during formation in order to maximize the simplicity and economic benefit of using the LLC entity. The drafting of an Operating Agreement in accordance with the overall goals and functions of the company will be easier and more legally advantageous if completed with experienced professional assistance.
Source: Forbes, "Could The LLC Structure Be A Smart Choice For Your Business?", Nellie Akalp, Sept. 28, 2016