Anyone who’s opening a business will have to make many decisions about the company. One of these is what type of business structure they will use. Some people who are opening a small business may opt for a sole proprietorship, but they may need more protection than that structure provides.
A limited liability company (LLC) is a simple business structure that’s suitable for many types of companies. It’s not difficult to establish an LLC, but it provides protections that most entrepreneurs will appreciate.
Limited personal liability
One of the biggest advantages of forming an LLC is in its name—limited liability. If the business faces a lawsuit or has unpaid debts, the owners (also called members) are generally not personally responsible. That means their personal assets like homes, cars, or savings are usually protected, as long as the business is properly maintained and legal requirements are followed.
This separation between personal and business assets gives many business owners peace of mind. It also adds a layer of credibility when dealing with clients, vendors, or lenders.
Flexible tax options
LLCs offer flexibility when it comes to how the business is taxed. By default, an LLC is considered a “pass-through” entity. That means the business itself doesn’t pay federal income taxes. Instead, profits and losses pass through to the members, who report them on their personal tax returns.
This avoids the double taxation that can happen with corporations. LLCs can also choose to be taxed as a corporation if it’s more beneficial. This flexibility allows business owners to tailor their tax structure to fit their needs.
The business structure is only one decision the entrepreneur has to make. Working with someone familiar with business formation may be beneficial for these individuals.