If you’re starting a new business or revisiting your decision to operate as a sole proprietorship, you may want to give the Limited Liability Company (LLC) some attention. The LLC legal structure offers advantages that attract entrepreneurs running small businesses in virtually every industry: retail, restaurants, graphic designers, technology, and attorneys. That’s right, even lawyers choose to form their businesses as LLCs.
What’s So Crazy Special About the LLC?
Plenty. Let us count the ways!
- Protection of personal assets in the event of legal action – An LLC is a legitimate corporate entity that provides some separation between the owners’ assets and the business. That means you might sleep better at night, because important things like your home and your kids’ college funds will be protected in the event of legal action against your business.
- Simplicity – LLCs deal with less formation paperwork and compliance requirements than corporations. You don’t face the grueling grind of creating a board of directors, documenting strategic decisions, holding an annual shareholders meeting, and going through certain other formalities.
- Additional level of privacy – When you register your business as an LLC, typically your company’s registered agent (the individual or business designated to receive service of process if your business is a party in a legal action) goes on public record rather than your home or company address.
- Taxation flexibility – As an LLC, you may opt to either have S-Corp tax treatment or have your LLC considered a pass-through entity. With S-Corp tax treatment, only salaries and wages are subject to self-employment taxes (FICA and Medicare). With pass-through tax treatment, profits and losses of your business are passed along to the owners’ personal tax returns, enabling you to lower your personal taxes if your business isn’t profitable.
- More credibility in the eyes of others – There’s something about having “LLC” at the end of your company name that can enhance the level of trust and confidence customers and potential partners have in your business. It shows you’re legit and take your business seriously—not that you wouldn’t as a sole proprietor, but it further reinforces your professionalism.
Feeling the love?
I can understand why. The LLC offers the best of both worlds: the protection of personal assets that a corporation provides and ease of administration similar to that of a sole proprietorship due to less formality and compliance requirements.
Of course, no matter how charmed with a legal structure you may be at first sight, I recommend not rushing into a decision until you’ve talked with a tax expert to figure out how the different options will affect you. Your business is unlike any other, so always take your specific situation into consideration and get the professional guidance you need to help you make the best choice.
Ready to fall into love with your own LLC? Let CorpNet help. Download our free LLC Guide, then call us to help form yours.