There were approximately 21.6 million active LLCs at the end of 2024 in America. It’s the most common type of business structure and the most beneficial. If you own a business or are starting one, you’ll likely need to form an LLC, and you should be in the process of doing so.
Below, we’ll discuss forming an LLC and the legal benefits that come with it.
LLC Explained and Why You Should Form One
LLC stands for Limited Liability Company. It gives your business its own legal identity, separate from yours. The main legal benefit is that your personal assets aren’t at risk if the business gets sued or falls into debt.
People form LLCs for different reasons. Some do it because they want to protect their savings. Others do it because they’re looking for something more flexible than a corporation. You don’t need to be a massive company to benefit from it. Plenty of freelancers and small business owners go down the LLC route because they want to do things properly.
An LLC makes it official that your business is a business.
Begin the process by registering your business name and filing Articles of Organization with the Secretary of State (or equivalent state agency). You must do that in the state where you want to register the LLC.
The Advantages of LLC Legal Protections
We already mentioned the number one reason to form an LLC is liability protection. If your business gets sued, your car, house, or personal bank account usually can’t be touched. The LLC puts a legal wall between you and your business.
You also get more control. Unlike corporations, LLCs don’t necessarily deal with endless board meetings or rigid rules. At least SME LLCs don’t. You can run it alone or with others, and you can decide how profits are split without following complicated shareholder structures.
Another perk is tax flexibility. An LLC doesn’t pay corporate tax by default, so your profits pass through to your personal return. But if it suits you better, you can ask the IRS to treat your LLC like a corporation. That’s helpful when you’re earning more and want to keep more of it.
Legal protections also bring business legitimacy. Clients feel better when they see they’re hiring a real company. If you want to trademark your name or sign a commercial lease, most people will ask for your business structure—and LLCs tend to tick the right boxes.
But its legal protections only go so far. Businesses see the most benefits from business insurance for a small LLC. Policies include:
- General liability insurance
- Workers’ compensation insurance
- Commercial auto insurance
- Commercial property insurance
- Professional liability insurance
The monthly cost depends on how much cover you need, the size of the business, claims history, etc. You can use free online quote tools.
What Legal Troubles an LLC Won’t Protect You From
- It will not protect you if you commit fraud, and it will not protect you if you lie on a contract.
- It will not cover personal guarantees. If you sign a loan with a personal guarantee, a default can still reach you.
- It will not protect you from payroll taxes. Those sit on you as a responsible person.
- It will not protect you from mixed funds, because courts may “pierce the veil” if you blend money. Keep clean books, and keep separate cards and accounts. Small lapses can undo big protections.
- It will not cover professional mistakes on its own. A client can still sue for bad advice or for missed deadlines that cause loss. Professional liability insurance covers you for this. A contract helps, but a contract does not pay claims by itself. You need solid scopes, and you need change orders when work expands.
- It will not pay for injuries or property damage without insurance. A slip in your office can turn into a claim. A damaged laptop can stall a project. Again, that’s personal liability insurance.
Forming an LLC is what you do to state your business structure. There are legal protections, but they’re minimal compared to taking out an insurance policy.
Forming an LLC isn’t just about paperwork (although there can be a lot of it). You need to protect yourself. Whether you’re freelancing full-time or in digital marketing, legal protections aren’t optional anymore.
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