If you own a house or a car, then you have at least one insurance policy. Insurance is an expensive thing that you pay for just in case something unfortunate happens to your personal property. Forming a Limited Liability Company (LLC) is like having insurance for your business just in case that rare unfortunate event happens to your company. The LLC business structure combines the limited liability of a corporation with the simple pass-through taxation of a partnership or sole proprietorship. An established LLC will have a tax identification number, financial records, and legal structure under its own name instead of yours. However, LLCs are still tied to personal taxes, which makes reporting to the IRS easy.
That’s why LLCs are the most popular entity for small businesses, with over 80% using this type of business structure. An LLC makes sense for many small businesses because it provides a lot of protection without an expensive price tag. It is also simpler and more flexible than forming other types of business structures like a corporation.
Top Reasons to Establish Your Business as an LLC
Here are some more specifics about how starting your company as an LLC can benefit you financially in the long run, especially when it comes to protecting you against unforeseen events:
- If your business needs to file for bankruptcy, you usually won’t be responsible for paying the debt with your personal money.
- If your business is sued, your personal assets will be viewed as separate from the business assets (and off the table when it comes to meeting any liabilities).
- On the other hand, if you are personally sued, then your business assets are safe from being seized.
- This also applies if you have a co-owner who was personally sued for any reason — your business assets are safe.
Why Does Having an LLC Matter?
Still not convinced an LLC is for you? Here are some highlights about other benefits of this popular business structure. An LLC can also:
- Protect your intellectual property.
- Help you get capital for your business.
- Allow for pass-through taxation. This means that any net income or loss is “passed through” to your personal income and simply taxed as personal income.
- Provide freedom from ownership restrictions.
- Offer versatile tax status.
- Have flexible profit distribution options.
- Require minimal compliance paperwork.
- Involve a less formal management structure.
- Be simply switched to a different entity type in the future if the business needs change.
How to Form an LLC
If all the reasons above are enough to make you want to form an LLC yourself, then you’ll need to follow these next steps:
- Select a state and address.
- Choose a name for your LLC.
- Select a registered agent.
- Decide how you want to file (whether you do it yourself or work with an expert).
- Obtain and file the Articles of Organization.
- Create an operating agreement.
- Get a federal Employee Identification Number (EIN).
Those are just the quick steps to forming an LLC. Seems simple, right? If you need more guidance, don’t be afraid to ask for help from a professional. This is something you want to get right from the start to ensure your company is protected.
An LLC provides peace of mind that everything you worked so hard to build remains standing upright. Consider it like a personal insurance policy to ensure the business will both be protected from unnecessary risk. Starting a business is risky enough as it is!
