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Why should you choose an LLC over other types of business structures?

On Behalf of | Jun 25, 2021 | Business Formation & Planning |

If you’re looking into starting a business, you likely realize that there are many options to choose from when selecting a corporate structure for it. There are various pros and cons associated with the many incorporation structures that exist. 

When starting a business, considering the option of an LLC might be worth some serious consideration. An LLC provides many of the same protections as a corporation while still allowing one to operate as a small business.

What is an LLC, and what are the benefits associated with it?

An LLC is a limited liability company. For income tax purposes, it has a pass-through treatment similar to a sole proprietorship or partnership. One detail that sets an LLC apart from a sole proprietorship or partnership is that an LLC limits an owner’s personal liability. 

Any debts incurred by an LLC, whether via lawsuits, liens or claims, are limited to the business’ assets. These lienholders are generally unable to pursue the personal assets held by a business owner if their incorporation structure is an LLC. These protections don’t apply if the LLC owner engages in illicit activities or some instances of negligence, though.

From a tax perspective, an LLC is not considered a distinct entity like a corporation. Thus, the LLC owner still has to report both profits and losses on their personal income tax returns, much like a sole proprietorship or partnership would have to do. 

How does someone set up an LLC?

One of the first steps to setting up an LLC is for its owner to select a business name that no one else is using. The name must include “LLC.” The LLC’s owner must then file Articles of Organization. They must appoint a registered agent and pay any required fees. An LLC’s owner also needs to draft an LLC Operating Agreement. 

You may find it helpful to have a business formation attorney guide you through the incorporation process to ensure that you meet all your responsibilities.