If you are interested in starting your own business, a good entity choice for such start-up may be the limited liability company (“LLC”). An LLC provides you with limited liability as to the debts and liabilities of the business. This keeps your personal assets safe from business debts (and vice versa) as well as serves as a much better entity choice than operating a business in your personal name.
If you were interested in receiving the tax benefits of the S corporation, you may still receive such benefits with an LLC. The limited liability company retains the benefits of limited liability, but can be federally taxed as a “subchapter S corporation”. This type of entity choice coupled with S corporation taxation benefits is often referred to as the LLC envelope.
The Limited Liability Company envelope achieves three important objectives:
- Protection of the owner’s interests in the company from their personal liabilities;
- Protection of the owner’s personal assets from the liabilities of the company; and
- Lower federal employment tax rates.
Further, incorporating an LLC taxed as a subchapter S corporation has asset protection benefits since the law in Florida limits a creditor’s remedy to a “charging order” [Florida Statute 608.433(4)]. In other words, the creditor may only receive distributions that the LLC owner would be entitled to in lieu of a foreclosure of the business. The owner may withhold such distributions, in certain cases, until the creditor threat has passed. This makes the LLC a great choice for asset protection.
Limited liability companies taxed as an S corporation allows the LLC to bypass double taxation (taxation to both the shareholders and the company). Second, your taxation rate may be reduced by as much as fifteen percent. However, it is important to have a knowledgeable Certified Public Accountant (“CPA”) assist you with minimizing your tax liability. The CPA will know the best way to maximize the tax benefits of the LLC envelope and reflect such tax benefit on your tax returns.
Contact the Attorneys of The Noble Law Firm, P.A. to discuss whether the LLC envelope is the good option for your business.