You’ve reached the point where you’re able to start your own business. Now you must decide what type of business entity you should create. One option you have is to form a limited liability company, or LLC.
A limited liability company can be a great choice for small businesses. However, each business entity has its own benefits to take into consideration. Here are some benefits a LLC can offer:
- Easy setup – Compared to other business entities like corporations, LLCs do not cost a lot to set up. And to set up, members only have to file “articles of organization” with the Secretary of State and pay a fee. The articles of organization just include the basic information for your business like its name and its members.
- Creating a separate entity – Unlike a sole proprietorship or partnership, a LLC becomes its own entity and provides all members with limited liability. This means that the LLC takes on liability instead of the owners and members. If your company has debt or faces a lawsuit, creditors can only go after the company assets. Limited liability protects your personal assets.
- Tax options – You have flexibility for your taxes with your LLC. Normally, LLCs have pass-through taxation. This means the IRS does not consider the business to be a separate entity. You pay taxes through your personal income tax. However, if you would pay less taxes as a corporation, you have the choice to classify your business as a corporation with the IRS. This flexibility gives you options for paying the lowest tax possible.
Disadvantages of LLCs
While the above can be good benefits of LLCs, they do have some drawbacks. Members pay self-employment taxes based on the net income of the business. This can mean paying more taxes than as the owner or shareholder of a corporation.
Also, LLCs also only stay alive if the members stay with them. Having a member leave can mean the dissolution of the business.
Choosing the right business entity
An LLC is one form of business entity. It may not be right for every business. Always consult a lawyer and accountant when deciding on the best entity for your business.
Choosing a LLC for your business entity can provide you certain benefits. LLCs are generally easy to set up and manage. They offer different tax options that can save you money. And they protect your personal assets from creditors or lawsuits.