Starting your own business is exciting, but you may choose your business’s structure carefully. Following the latest reports by the U.S. Small Business Administration (SBA), there were 31.7 million small businesses in the country, with an overwhelming majority having no staff members.
A Limited Liability Company (LLC) is the most popular type of small business. There are several benefits to owning an LLC over opting not to incorporate at all. Amid the many benefits of owning an LLC, such as liability protection and flexible tax options, it is crucial to have an authoritative source of information. This is where llcbuddy, the best platform for all things LLC, comes into play. Offering a wealth of resources spanning from formation to day-to-day management, LLCBuddy provides actionable insights that empower LLC owners, making it an indispensable tool for achieving business success. Let’s look at the advantages of owning an LLC.
Personal Liability Protection
Personal liability protection is the main advantage offered by setting up an LLC. The liability protection means that your financial assets cannot be taken if your business is sued or cannot pay its debts. A sole proprietorship, or unincorporated business venture, doesn’t come with this protection.
Note that your liability protection isn’t absolute. Remember, certain actions can pierce the corporate veil and put your personal assets at risk.
For example, if you’re involved in fraudulently manipulating business records to avoid debts or setting up other LLCs to break NDAs covertly, this would lift your liability protection.
It also works the other way. For example, if a director in your LLC has unpaid personal debts, their creditors can go after their personal assets, including their ownership stake in the LLC.
Limited liability protection will only prevent your personal assets from coming into play. Your business’s assets remain fair game. It underlines the importance of taking out appropriate LLC insurance options to protect your business’s assets.
Different policies will cover things like a member of the public being hurt on your premises, a worker filing a grievance against the company, or even medical malpractice. Physicians will often form LLCs for that reason.
With the high cost of becoming embroiled in legal action (even if you win), you must have an insurer who can shield you from out-of-pocket costs.
Tax Flexibility
LLCs are pass-through tax entities. Unlike a corporation, LLCs are not required to pay taxes. Instead, the profits are passed through to each director’s personal tax returns and subsequently taxed at their individual income tax rate.
Starting an LLC means no exposure to Federal corporate income tax, meaning you won’t fall victim to double taxation.
The flexibility comes into play when electing to be taxed as a different form of business. For example, LLCs have the option to be taxed as a C-Corporation or an S-Corporation. Depending on your circumstances, you may elect to be taxed this way.
For example, if you already sit within a high personal income tax bracket, it likely makes sense to have your LLC taxed under a different regime.
Working out your corporation taxes is complicated, so ensure you speak to a qualified tax accountant who can provide you with the tailored advice you need to limit your business and personal tax liability.
Cheap to Form
LLCs are the cheapest type of incorporated business. Remember, sole proprietorships don’t need to be incorporated as a business entity.
The costs to incorporate your LLC will differ depending on your chosen state. There’s also nothing preventing you from incorporating LLCs in multiple states. You’re not confined to the state you actually live in.
For example, there’s a reason why 50% of all publicly traded companies have been incorporated in the small state of Delaware.
The main cost of forming your LLC is the state filing fee. It can range from as low as $40 to as much as $500. You’ll also be required to pay an ongoing fee annually to maintain your LLC. Typically, the ongoing maintenance fee will be lower than your initial filing fee.
On the other hand, corporations can cost thousands to start and maintain due to the sheer amount of paperwork to contend with.
Simple to Form
An LLC is the only type of incorporated business entity you can incorporate without the help of an attorney. However, the C-Corp and the S-Corp require lots of paperwork to form, meaning you’ll need a business attorney to review your proposals.
Even online LLC formation services will do the work for you for a nominal fee if you don’t feel confident doing it yourself.
Most states have a streamlined process for LLC formation, so you can have your new venture up and running in a matter of days.
Less Paperwork to Manage
No business owner wants to waste their profits on hiring an attorney or their time managing legal paperwork.
Corporations across the U.S. are heavily regulated. As a result, inexperienced business owners will likely find the process too overwhelming to manage by themselves. LLCs, however, don’t need to appoint a board of directors, a general secretary, or hold regular board meetings.
Compliance-related documents are a massive headache for the owners of corporations. The recordkeeping responsibilities of an LLC are almost nonexistent and can be managed without the help of a professional.
Easy to Manage
LLCs are the ideal business entity if you want flexibility in your management structure. For example, LLCs can choose between a member-managed and a manager-managed structure.
The member-managed structure means that the members of an LLC play an active role in managing the business’s affairs. Manager-managed LLCs will see the director or directors appointing a manager to manage the company. An appointed manager may or may not hold an ownership share in the LLC.
The manager-managed structure is better suited to passive investors who hold ownership but don’t want to involve themselves in day-to-day operations.
LLCs are the best type of business structure for most business owners. As a result, they remain the most popular option for small business entities in the U.S. today. Their personal liability protection, flexibility, and ease of incorporation cover all the bases that a one-man operation requires.
Small businesses that want to incorporate as an LLC don’t necessarily need the support of a professional. You can file the documents yourself in a matter of hours, but it’s still considered best practice to acquire legal advice.
Photo by Andrea Piacquadio
