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Why are LLCs so Popular?



By: Jack Nicholaisen author image
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Over the past few decades, there has been a significant increase in the formation of Limited Liability Companies (LLCs) in the United States.

article summaryKey Takeaways

  • LLC Growth LLCs in the U.S. grew from 200,000 in 1993 to over 2.4 million in 2018, showing their increasing popularity.
  • New Business Preference In 2017, 69% of new U.S. businesses were LLCs, indicating a strong preference for this structure.
  • Industry Dominance Over 80% of U.S. real estate firms and many in professional services and retail are LLCs, favoring their liability and tax benefits.
  • LLC Benefits LLCs offer limited liability protection, tax flexibility, operational ease, and enhanced credibility.
  • Entrepreneurial Advice Entrepreneurs should consider LLCs for their business structure due to their foundational benefits for success.

Many entrepreneurs and business owners are choosing this structure for their ventures due to its numerous advantages, such as flexibility, liability protection, and tax benefits.

This article delves into the world of LLCs, providing a statistical overview of their growth, the industries where they are most popular, and the specific advantages that make them an attractive choice for businesses.

Since their inception in the late 1970s, LLCs have grown in popularity among entrepreneurs and business owners.

According to the IRS, the number of LLCs in the United States has increased dramatically from approximately 200,000 in 1993 to over 2.4 million in 2018.

This growth can be attributed to the unique benefits offered by LLCs, such as limited liability protection, pass-through taxation, and operational flexibility.

The rise of LLCs can also be observed by looking at the percentage of new businesses choosing this structure…

According to the US Small Business Administration, LLCs accounted for roughly 69% of all new businesses formed in the United States in 2017. This statistic highlights the growing preference for LLCs among entrepreneurs and business owners.

➤ MORE: Check out the history and events leading up to the creation of LLCs

LLCs are a popular choice for businesses across various industries.

Some of the most common industries where LLCs are prevalent include:

1. Real Estate:

Many real estate investors and developers choose LLCs for their ventures due to the liability protection and pass-through taxation benefits.

According to a study by the National Real Estate Investor, over 80% of real estate firms in the United States are structured as LLCs.

2. Professional Services:

Law firms, accounting firms, and consulting firms often opt for LLCs to separate personal and professional liabilities.

The American Bar Association reports that the majority of law firms in the United States are organized as LLCs or similar structures.

3. Retail and E-commerce:

Many small business owners and online entrepreneurs choose LLCs for their retail and e-commerce ventures.

The flexibility and simplicity of the LLC structure make it an attractive choice for those looking to start or grow their businesses in this sector.

Advantages of Forming an LLC

There are several reasons why entrepreneurs and business owners are increasingly choosing to form LLCs.

Some of the key advantages include:

1. Limited Liability Protection:

LLCs provide personal liability protection for their owners, shielding them from the company’s debts and obligations.

This protection is especially important for businesses in industries with higher risk, such as real estate or construction.

2. Tax Flexibility:

LLCs enjoy pass-through taxation, meaning that profits and losses are reported on the owner’s personal tax return.

This avoids double taxation, which can occur in other business structures like corporations.

3. Operational Flexibility:

Unlike corporations, LLCs are not required to have a board of directors, hold annual meetings, or adhere to other formalities.

This allows business owners to focus on growing their businesses without being bogged down by administrative tasks.

4. Credibility:

Forming an LLC can add credibility to a business, as it shows potential customers, investors, and partners that the company is a legitimate, structured entity.

In Conclusion…

The meteoric rise of LLCs over the past few decades has transformed the landscape of business structures in the United States.

Their unique benefits, such as limited liability protection, tax flexibility, and operational freedom, have made them a popular choice across various industries.

If you’re an entrepreneur or business owner considering your options for structuring your venture, take the time to research and understand the advantages of forming an LLC.

It could provide the perfect foundation for your business’s success.

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Sources

These sources provide valuable information and insights into the growth, popularity, and advantages of LLCs across various industries.

By exploring these resources further, you can gain a deeper understanding of why entrepreneurs and business owners are increasingly choosing to form their ventures as Limited Liability Companies.

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About the Author

jack nicholaisen
Jack Nicholaisen

Jack Nicholaisen is the founder of Businessinitiative.org. After acheiving the rank of Eagle Scout and studying Civil Engineering at Milwaukee School of Engineering (MSOE), he has spent the last 4 years disecting the mess of informaiton online about LLCs in order to help aspiring entrepreneurs and established business owners better understand everything there is to know about starting, running, and growing Limited Liability Companies and other business entities.