Is Making My Business an LLC the Best Choice?
An LLC protects an entrepreneur against lawsuits which are common in sole proprietorships. It also requires minimal paperwork compared to a corporation and gives an entrepreneur more tax benefits. Below is a list of benefits to incorporating your business and starting an LLC.
Limited Personal Liability
If your business is a partnership or a sole proprietorship, you and your business entity are the same “person” legally. Business debts are considered personal debts, and if your business worker or partner gets accused of negligence, your personal assets are put at high risk. An LLC is legally separate from its owners, which limits personal liability. An LLC is responsible for its obligations and debts. Although investors may lose the invested money, personal assets, including bank accounts and homes, are not used to collect business debts. If a business partner or an employee sues the business for negligence, your personal assets are well protected.
LLCs have no federal tax classification but adopt the tax status of partnerships, sole proprietorships, C corporations, or S corporations. The Internal Revenue Service will then classify an LLC as a sole proprietorship or partnership depending on the number of owners. LLCs take advantage of pass-through taxation without paying any corporate or LLC taxes. The LLC’s expenses and income pass through the owners’ personal tax returns, where they get to pay the personal income tax on profits.
Corporations tend to offer limited liability and observe various requirements that may not suit small and informally run businesses. Corporations, for instance, must make annual reports, hold yearly shareholder meetings, and pay yearly fees to the state. They also deal with substantial recordkeeping requirements. LLCs, on the other hand, are not required to hold annual meetings and are not required to maintain extensive records. LLCs do not need to file yearly reports in most states.
The board of directors oversees the day-to-day running of corporations. Shareholders must meet annually to conduct various processes, including electing directors. An LLC does not use a formal structure, and LLC owners have multiple choices about the decision-making, how the business is run and how to incorporate your business.
An LLC’s business structure is adaptable, simple, and perfect for small businesses. Owners of an LLC may take advantage of management flexibility, LLC tax benefits, and minimal reporting and recordkeeping requirements. Contact us at Quick Capital Fund for more insight into an LLC’s benefits and ways to incorporate your business.