If you’ve ever considered starting a business, you may have come across the abbreviation LLC before.
But what exactly does it mean, and is it good or bad for your business?
The types of business structures
LLC stands for limited liability company, and it is one of the many business structures in the US.
The other business structures are:
- general partnership
- sole proprietorship
While many small business owners tend to want to open a sole proprietorship due to its ease, the LLC may be better.
The LLC is a legal entity that will help you protect your personal assets in the event your business gets sued. This is because the LLC, not you, becomes the target of the lawsuit and any undertaken debt.
The business owner is untouched in these situations.
For that reason, the general partnership and sole proprietorship are not recommended because they don’t provide that type of liability protection.
On the other hand, the s-corporation and c-corporation may be too large and complicated for the regular small business. The taxing is much more complicated and corporations should be saved for medium and larger businesses.
Advantages of the LLC
There are four very important advantages to be aware of when it comes to forming an LLC.
1. You’ll have personal asset protection
As mentioned above, the main advantage of an LLC is that you’ll be protected against most lawsuits.
If the worst thing happens and your business runs into a disaster, you can be safe knowing that your personal assets will be safe.
2. Pass through taxation
Another grand aspect of starting an LLC is that you don’t have the double taxation for corporations.
This is because the LLC will only be taxed once, what’s known as “pass through taxation.”
In this scheme, all the LLC profits will go directly from the company to the business owners. Only then will those profits be taxed, when the business owners report their profit share on their tax returns.
As can be noted from the above taxation example, LLCs seem to be easier. The paperwork is quite minimal and it is relatively straightforward to start and maintain an LLC.
Alternatively, if you form an s- or c-corporation, you’ll need to:
- assign formal officer roles
- by law have annual meetings
- record regular minutes and resolutions
This type of work is manageable at larger companies because they have the staff and resources. In all likelihood, you don’t.
Lastly, by opening up an LLC, you’ll appear more professional to your clients.
When you have the words “LLC” or “Limited Liability Corporation” at the back of your business name, you will appear more serious to your customers.
And with such an increase in your brand and reputation, you can actually get more clients.
With these advantages, it’s easy to see why small businesses should all probably set up an LLC.
This is much better than the sole proprietorship, general partnership, or the s- or c-corporations.
With the correct business structure, you’ll be set to start your business off right.