When you’re starting out in business for yourself, it can be confusing to try to sort out the different options for structuring your company. The choice is a big one because it can have huge consequences for your future in numerous ways.
An LLC, or limited liability company, offers several benefits to business owners. These are some key advantages of this particular business structure.
You’ll limit your personal risk
One of the biggest benefits of an LLC is the superior liability protection it provides to its owners or “members” over a sole proprietorship or general partnership. Generally speaking, this means your personal assets, such as your home, vehicles and private investments, are protected from loss if you are sued over your business liabilities and debts (with some exceptions).
You’ll get a flexible management structure
LLCs have a lot of flexibility when it comes to their management structure. They can be managed either by the members themselves or by appointed managers. This flexibility allows you to choose a management structure that suits your preferences and skills. If, for example, you’re more “creative talent” than a businessperson, it may be ideal to put your day-to-day operations in the hands of someone with more experience.
You may find taxes easier to manage
Instead of the business paying federal taxes, the profits and losses of the business are “passed through” to you and other members and reported on your personal tax returns. This avoids the issue of double taxation that can occur with certain other business entities (like corporations) and is often easiest for new entrepreneurs to understand.
You can create an LLC very easily
The process of setting up an LLC typically involves filing articles of organization with the appropriate state authority, creating an operating agreement to define the company’s structure and operations, and obtaining any necessary licenses or permits.
You have more credibility
Operating as an LLC can enhance the credibility of a business, especially in the eyes of banks and investors. It provides a formal business structure that may be perceived as more trustworthy (and less likely to fold overnight). Rightly or wrongly, that can make it easier to get the financing your young business needs.
One thing is for certain: Because you have options and it can be difficult to parse through the pros and cons of each on your own, it’s smart to get some experienced legal guidance as you move forward. The future of your business may depend on you making this effort.