Many entrepreneurs form a limited liability company (LLC) due to its many benefits. But did you know that some of the world’s biggest and best-known businesses are also LLCs?
Read on to learn about some surprising companies that happened to be LLCs and the benefits of this popular business structure.
What Is an LLC?
An LLC provides personal liability protection, for example, so your assets are not at risk if your business is sued or cannot pay its debts.
Also, an LLC is a “pass-through entity” in taxes, meaning that the LLC itself is not taxed. Instead, income passes through the company to the LLC owners or members, who report it on their tax returns. The income, again, is also subject to self-employment taxes.
LLCs also offer flexibility in management, as there are few requirements regarding organizational structure.
1. Google LLC
Yes, Google is an LLC. It’s a subsidiary of its parent organization, Alphabet Inc., and a holding company for Alphabet’s internet business interests.
2. Berkshire Hathaway
Berkshire Hathaway, best known for its investment holdings, is a corporation. But it’s also a holding company for many subsidiary LLCs, including BHH Affiliates LLC, a real estate firm.
ExxonMobil Sales and Supply LLC is a subsidiary of ExxonMobil Corporation and operates as a supplier of crude oil.
4. Johnson & Johnson
Johnson & Johnson LLC is a subsidiary of the corporation of the same name and is a wholesale supplier of surgical and medical equipment.
While Amazon is a corporation, it also runs an electronics and appliances subsidiary called Amazon.com Services LLC.
Sony Group Corporation owns several subsidiaries, including Sony Interactive Entertainment LLC, which offers video games and digital entertainment.
Everyone knows IBM for its computer and IT products and services, but IBM also has a subsidiary called IBM Credit LLC, which provides financing for IBM and other products.
Anheuser-Busch beers are consumed worldwide, and Anheuser-Busch Companies LLC, a subsidiary of Anheuser-Busch InBev, owns 12 US breweries that bring in $15 billion in annual revenue.
Benefits of an LLC
Let’s discuss an LLC’s specific benefits that make it popular even for large companies.
1. Simplicity of Administration
LLCs are easier and less expensive to form than a corporation. However, due to their complexity, corporations are best formed with the help of an attorney. Also, unlike corporations, LLCs are not required to have a board of directors or hold annual meetings.
LLCs do, in most states, have to file annual reports. Corporations do as well, but their reporting requirements are much more complex.
In an LLC, the members do not have to answer to anyone. They ultimately control the company and can structure the management in any way they choose. In a corporation, on the other hand, managers answer to the board of directors, which has overriding decision-making power.
3. Limited Personal Liability
In LLCs and corporations, owners are considered separate entities from the business, so both structures offer personal liability protection. However, in a few instances, owners do have personal liability. For example, if an owner personally guarantees a bank loan, which is expected, they’re liable for that debt.
In a sole proprietorship, on the other hand, the business owner and the business are legally considered the same, so the owner is personally responsible for all obligations of the business.
As mentioned above, LLCs are pass-through entities, which means income passes through to the member or members. If the LLC has only one member, it’s taxed as a sole proprietorship. If the LLC has more than one member, it’s taxed as a partnership.
However, LLCs are unique because they can elect to be taxed as a corporation if the members decide it makes financial sense. This is done by filing an election form with the IRS. In addition, you can choose to be taxed as a C-Corp or an S-Corp.
For corporations, the business income is taxed at the current rate for corporations (21% as of late 2022), which is lower than the usual individual taxpayer rate. But remember that corporation shareholders must also pay taxes on their distributions.
However, members are subject to self-employment tax in an LLC taxed by default as a sole proprietorship or partnership. Once such LLC switches to being taxed as a corporation, self-employment taxes no longer apply.
Similarly, self-employment taxes do not apply to members with S-Corp status, which is the main advantage of electing S-Corp status.
With S-Corp status, members are generally paid as company employees, which means more accounting and payroll expenses. Therefore, S-Corp status is only beneficial when the self-employment tax savings exceed those additional expenses.
5. Profit Sharing Flexibility
Most businesses split profits based on owners’ capital contributions, regardless of the entity type. Corporations pay dividends based on the ownership percentage of the shareholders.
But LLC owners can specify any profit-sharing plan they choose in the operating agreement. One member can take a share of profits greater than their ownership interest, while other owners take less. This may be based on the fact that one member is more involved in day-to-day operations.
LLCs are a popular choice, even for big-name companies, because of their advantages. In addition, most small companies choose to form LLCs, so an LLC is worth considering if you’re starting a business.
Talk to your tax advisor and attorney before ensuring an LLC is the best fit for you.