Many small businesses start out with their owners filing as a sole proprietorship, electing for tax simplicity and fewer requirements for sales tax compliance. This is attractive to many starting entrepreneurs in their journey to starting a side business or launching their own dream. There are, however, several drawbacks to a sole proprietorship, thus making a small business much more feasible setup as a limited-liability company or setting up an LLC.
Setting up an LLC may seem daunting to the uninitiated, however the process tends to be fairly straightforward, and even easier with the help of experienced professionals. Yes, specific forms must be completed before becoming eligible in setting up an LLC, but the work in the beginning will pay off over time if the business is managed properly. There’s no coincidence why LLCs are the most popular business entity of the United states, as Motley Fool reports 35% of small to medium sized businesses are filed under an LLC.
In an LLC, there are significant benefits for the owners and their assets. First, liability, after setting up an LLC, falls on the business as a collective, rather than the owners of a company. This is important if a business is entering a market where the rate of failure may be higher than average. Choosing this route will protect the owners from losing their life savings and personal assets. Secondly, individuals may sue the business owners as individuals instead of the business, whereas setting up an LLC provides protection for the business owners from being vulnerable to lawsuits. As a result, personal assets again are protected and only company assets will be held liable.
If you are a small business owner, then setting up an LLC may be the best option for you. Your personal assets will become far less likely to be seized, and you won’t have direct liability in the case of any lawsuits which may occur, whether or not the fault belongs to you, a partner or employee of the business. You can take advantage of setting up an LLC today, with full confidence that your business will have the tools it needs to succeed.
Disclaimer: This is published as educational content only. For more on tax or financial advice, please speak with a licensed professional.