Starting a business or scaling up from a one-person operation can be tremendously exciting, but choosing the legal structure for your business is a decision that can have a broad impact on your future success.
You do have choices, but one popular option for entrepreneurs is a limited liability company (LLC). Many consider it an excellent choice for small and medium-sized businesses in numerous industries. Here’s why:
You can start one very easily
Aside from the fact that the paperwork to form an LLC is generally minimal, LLCs have a lot less operational complexity compared to corporations. You don’t have to have shareholder meetings, keep minutes and file annual reports. This allows operations to continue much as they have in the past.
You gain some important legal protections
Because an LLC is a distinct legal entity that’s separate from its owners. As such, it has its own responsibilities and rights. An LLC can sue and be sued, buy and sell property, make its own investments and borrow or lend money in its own name.
That’s where the “limited liability” for the owners comes in. If the company experiences financial problems or gets sued, the assets of its members cannot be used to pay any debts. Members only risk what they’ve actually invested in the business.
You can still take advantage of pass-through taxation
A limited liability company can also be structured as a “pass-through” tax entity. Profits and losses flow through the member-owners, who then report their share of these on their personal taxes. That avoids any “double tax” traps that might exist if the business were taxed as a C-corporation.
Forming a business entity is one of those decisions that you shouldn’t make alone. Discussing your options over with someone with experience can help make certain that you’re making the best informed decision you can.