Updated data released by the Internal Revenue Service (IRS) has revealed a significant increase of new Limited Liability Company (LLC) tax returns in the recent five years. Between 2010 and 2015, the IRS saw a 20.3% increase in new LLC tax returns being reported, giving this business entity the edge over more popular and well-known forms such as C Corps and S Corps.
Although the notable increase in new LLC returns has proven to be a more attractive form of business for many new entrepreneurs and business owners, sole proprietorships and C Corps are still among the most widely used forms of business in the United States.
But with the increasingly new number of business applications each year, and the digital age making it easier for nearly every person to begin their startup, why are LLC companies swiftly leading the track to become the most notorious business entity for new business owners?
What is a Limited Liability Company or LLC?
According to a definition provided by the IRS, an LLC is a legal form of business stature that can comprise a single owner, with no limitations on the maximum number of owners involved. More so, LLCs can also include other forms of businesses such as corporations, other LLCs, or foreign entities. It offers personal liability protection for owners with less regulation and personal asset protection.
LLCs’ tax regulations have improved in recent years, and now all businesses registered as LLC can undergo pass-through taxation. It’s become one of the simplest and most attractive forms of business for many new entrepreneurs, as it hosts personal liability protection in the event of bankruptcy or legal action.
How do I form an LLC?
When comparing providers of LLC business formation services there are various factors one needs to consider when setting up an LLC. Overall, the formation and filing procedure is quick and simple and involves minimum effort. Each state has its regulations regarding formation, and owners will need to provide a business name, select a registered agent, file articles of organization, create an operating agreement and apply for an Employee Identification Number. These and other steps can be completed with the use of a formation service provider such as IncFile, LegalZoom, or ZenBusiness, among others.
The current state of LLCs in the United States
Small businesses in America provide more than 65% of employment opportunities and comprise more than 37 million American businesses.
LLCs did not exist prior to 1997, and according to IRS data have become one of the most popular legal entities for new business formations in America. In 2021, the IRS received more than 2.2 million tax returns registered as LLCs as compared to the 2.9 million submitted by S Corps.
Although LLCs are somewhat newer to the playing field of American businesses, they still have the edge above longstanding forms of business such as C Corps, S Corps, and Sole Proprietorships. On average, it’s been proven that LLCs grow at a rapid pace of more than 20% year-over-year. When compared to S Corps, this business entity has seen slower growth, at 6% annually over the last 30 years.
Why are LLCs so popular?
Various key factors influence the overall success and performance of LLCs, but overall it’s largely contributed by pass-through taxation and personal liability protection. In some instances, small businesses, even single-owned businesses can be protected against any form of legal action and financial downturn when economic outlooks seem to decrease.
The positivity around LLCs is that it’s become a trustworthy and financially viable business entity for many new business owners who are looking to expand capital investment and ensure personal liability protection.
A final consideration
S Corps and Sole Proprietorships remain among the most popular forms of business in the United States. It’s a financially worthwhile business entity that can offer better protection against personal assets but allows owners to invite more potential investors and partners along.
Although LLCs only became a fully recognized legal business entity in 1997, current predictions by the Internal Revenue Service put in the lead among other popular forms of business, as LLCs provide a modern take on a traditional sense of business.