It might have been a dream since you were young. It could be a new idea you recently had. Possibly, a friend presented you with an opportunity. Whatever the reason for starting a business, determining the business structure of this new adventure is crucial when it come to the success of your new business.
When it comes to small businesses, creating a limited liability company or LLC is the most common. This is due to the benefits it provides. While there are other business structures available, this post will focus on LLCs and the benefits it provides.
The benefits of an LLC?
In simple terms, an LLC is a business structure that combines elements of a C corporation with those of a general partnership. The owners of the LLC, which are known as the members, are protected from personal liability for any business debts. In other words, the personal assets of the members are safe in the event that the business owes money.
This protection is a major benefit of this business structure. Additionally, there are tax benefits for this type of structure. Unlike corporations, LLCs avoid the double taxation. In other words, an LLC can choose pass-through status with the IRS. This means that the company is not taxed but rather the income of the company passes through its members. This means this income is included in the personal tax returns of the members.
When creating an LLC, it is just as important to consider the drawbacks when assessing the benefits it offers. For instance, LLCs often face more administrative paperwork and record-keeping when compared to sole proprietorships or partnerships. Additionally, LLCs are likely to encounter startup fees as well as annual fees.
While the protection from personal liability is a huge benefit for those forming an LLC, it should be noted that this is not an absolute protection. In other words, there are some situations that could cause the member of an LLC to be held personally liable. As such, it is important to consider these situations and if they could be relevant to you and your members.
Starting a business is an exciting time; however, it is also a time where many decisions need to be made. If you are unsure of the business structure to use, it is important to consider all your options. A legal professional can help you assess your situation, goals and options, allowing you to make a well-informed decision when forming a business.