When you make the decision to start a new company, there are a lot of things that you’ll have to figure out along the way. While all of these decisions can shape the future of your company, determining the proper business structure is likely one of the most important that you’ll have to deal with.
For many new entrepreneurs, the decision comes down to determining if they’re going to start their business as a sole proprietorship or as a limited liability company (LLC). While the sole proprietorship is often the simplest and least expensive option, it doesn’t provide the same benefits or protection as the LLC.
Benefits of an LLC
One of the primary benefits of an LLC is that it creates a division between the owner’s personal assets and the business. This limited liability means that owners are typically not held personally responsible for lawsuits or debts of the business. Their personal assets, including their homes and bank accounts, would be protected if the company faced legal troubles or financial issues. This allows the owners to have peace of mind while letting them take calculated risks with the business.
Another benefit that some business owners appreciate is the pass-through taxation method that the LLC uses. This allows them to file the profits of the business on their own personal income taxes, which avoids corporate double taxation. An LLC also has the option of choosing to use corporate taxation if that would provide an advantage to the business.
Ensuring that the business structure is set up properly is a critical step for any new entrepreneur. Working with someone who’s familiar with establishing new businesses may be beneficial, so they can provide guidance throughout the process.