When individuals start a business, they are deemed the sole proprietor of a company. They hold all power over the company, and it will cost very little money and paperwork. Despite these obvious benefits, choosing proprietorship over forming a limited liability company (LLC) comes with far more risks than pay-out. This article will discuss why a business should form an LLC and will also gloss over the handful of disadvantages of it as well so that you can make a decision about what’s best for you and your business.
What is an LLC?
An LLC is a type of business structure that removes the personal liability from the owner. This means that if something, say a lawsuit, was to befall the company, then the owner would not be held fully responsible. An LLC permits the company to be taxed like a partnership and can be provided with the limited liability that’s equal to a corporation, only it’s more affordable and worlds easier to run than a corporation.
Why should I form an LLC?
If you are the sole proprietor of a company, and you want to minimize your legal liability, then you should consider getting an LLC. An LLC can fit any type and size of a business. As mentioned at https://fatstacksblog.com/zenbusiness-review, the steps to forming an LLC can appear overwhelming. But don’t be frightened — these steps are in fact achievable and can be completed by any individual or with the help of a third-party company.
What are the advantages of an LLC?
Listed below are the advantages of forming an LLC for your business.
Protection of Personal Assets
Limited liability will be provided to owners, meaning that the LLC owner will not be held responsible for any debts a business incurs. This includes debts from lawsuits or if the business cannot break even. Creditors or anyone who files a lawsuit against your business can only go after your LLC’s assets, not your personal belongings. So, your cars, properties, bank accounts, and other personal assets will not be at risk.
Short Term Project Option
LLCs were originally created for the purpose of short term business ventures. They were never intended to carry on for lifelike corporations but were instead given a set term where they would dissolve by a certain date. Most states will permit LLC members to vote on keeping the business alive past its termination date. However, the short term project is a great option for film financing, real estate, or other business endeavors that are not meant to continue forever.
Control of Taxation
Most startups are not a hit in the first year and will likely result in hundreds of thousands of dollars in losses. Losses and profits of an LLC will be “passed through” to the owner’s tax returns. Profits will be taxed at the owner’s tax rates, and losses will be deducted.
LLCs are the most flexible business partnerships you can apply to a company. An LLC can have as few as one member and as many as 100 members or even more. Members can share responsibilities or they can designate another member or non-member to manage the business.
Forming an LLC for your company indicates legitimacy to potential clientele and assures that your business is trustworthy. By heightening the credibility of your business, you are thus making it a more lucrative business with increased longevity.
What are the disadvantages of an LLC?
While the advantages far outweigh the disadvantages, it still will behoove you to know the downside of forming an LLC.
LLCs will come with a formation fee and will have annual and franchise tax fees. These fees will vary by state, so be sure to check with the Secretary of State’s office to get an idea of the typical cost that goes along with an LLC. Sole proprietorships and general partnerships will cost less to maintain. Bear in mind the financial risks of not forming an LLC, and weigh your options based on the safest move.
All members of an LLC have to approve the addition of new members or alterations made to ownership percentages of current members. It’s not as simple as corporations where shareholders can sell their shares to another party or stock shares can be sold to increase ownership.
By forming an LLC for a business, owners can rest easy knowing their personal and intellectual property is protected and that tax season will be less of a headache. If you are interested in a short term project or a long term LLC, then check with your Secretary of State to determine the cost of an LLC.