When forming a business, there are many factors to consider. One of which would be the type of entity or organization you will form. Will it be a corporation, limited liability company, limited liability partnership, or sole proprietorship? There are so many options, but you have probably noticed that most people are excited about LLCs or limited liability companies. The question is why?
According to Encyclopedia.com, limited liability companies became an option in 1977, with most states adopting them in the 1990s. Within 30 years, limited liability companies have become very popular and here are 5 reasons why.
- Limited liability companies usually give the owner personal liability protections just like a corporation without having to incorporate. Personal liability protection is important because it means that if something goes wrong with the business and someone sues the owner, the person filing the lawsuit can only ask for the assets of the business and not the owner’s personal assets (i.e. – bank accounts, homes, cars, et cetera).
- The dreaded word is taxes, but many people really like limited liability companies because the owner does not have to file a separate tax return for the business. The income and expenses of the limited liability company will be filed on the owner’s personal income tax return.
- Having “LLC” behind the name of the business can make even a one person small business seem more legitimate and of course legal. Your audience and potential customers will see you are serious about your service or product.
- Forming an LLC is not as complicated as many of the other entities. For a limited liability company, you will need to register with the state, likely contact the IRS for an employee identification number and finally draft an operating agreement.
- Generally the number one reason limited liability companies are loved in the United States is because they are very flexible. Limited liability companies can often be managed by the owner or by someone outside of the owners. This means that the owner can handle the day to day operations without having to hire another person. Or, they may choose to have someone come in and handle the day to day and focus solely on financial and vision for the business. Another area where limited liability companies are flexible is in pay. Owners do not have to wait on a salary. They can take a draw or write themself a check, at any time from the company’s profits.
As with any decision, there are drawbacks, but for most start up businesses a limited liability company is the right fit. Fields Law would love to help you get your business started. At Fields Law we have helped plenty of businesses not only form but also create amazing procedures and manuals for the successful operation of the business for years to come.
