Creating a formal business entity is a very involved process. People invest a lot of time, money and consideration into the creation of a business plan. They then generally choose a business structure, file paperwork with the state and start preparing to operate their new company.
There are many different types of businesses that entrepreneurs can start. Many first-time business owners keep things simple by selecting a sole proprietorship. Others will take on a partner. Limited liability companies (LLCs) are another popular choice for aspiring entrepreneurs. Although they may require a bit of additional paperwork, they do offer several benefits for aspiring entrepreneurs.
Protection from legal and financial liability
As the name implies, a limited liability company offers a degree of protection for an entrepreneur and their investors. Should the company fail and end up with major debts or face lawsuits brought by injured or dissatisfied customers, those who started and helped operate the organization will have protection from personal responsibility for those claims.
Every different business type has different tax rules that apply to it. An LLC is a hybrid arrangement that offers people the best of both business and personal tax systems. An LLC can make use of any business write-offs, including facilities expenses and equipment depreciation, before allowing any revenue to pass through as the income of the owner. That individual can then use personal income tax rules to further reduce their liability for taxes. Especially for smaller businesses and professional practices, this business form may offer optimal protection from tax requirements.
A professional veneer
Doing business under one’s own name or as a simple partnership can certainly be a very professional undertaking. However, having a separate business name can create a veneer of professionalism that can set one company apart from its competitors. For cleaning services, for example, people may feel more comfortable hiring a company with a catchy name than simply an individual doing business in their own name.
LLCs can be useful in many situations, but they aren’t the best choice for everyone. Seeking legal guidance and considering the current and long-term plans for a business can help someone more effectively choose the right legal type given their plans.