5 Reasons Why Becoming An LLC Is the Best Choice For Your Business


tablet with information about LLCs on desk
Image credit: WrightStudio / Adobe Stock

Small business owners have hundreds of significant decisions to make regarding their organization, and the choice to operate as a sole proprietor versus a limited liability company (LLC) is an important consideration. Incorporating a business as an LLC is a popular choice for many small business owners because it is easier and more inexpensive to run than a corporation but provides the same limited liability (a legal status in which a person’s financial liability is limited to a fixed sum). If you’re on the fence about pursuing an LLC for your business, here are five reasons it’s a great idea.


Receive personal liability protection


Perhaps the most advantageous benefit to incorporating your business as an LLC is the limited personal liability an LLC offers. If your business remains a sole proprietorship or a partnership, your personal assets could be at risk if a business partner or employee takes a negative action that harms the business. Becoming an LLC legally separates the business from its owners. Your car, home, bank account, and other assets can’t be used to collect on business debts if you’re an LLC, and those same assets are protected if an employee or business partner would be sued.


Choose how you’re taxed


While sole proprietors are taxed on everything (as the business is not considered a separate entity from the owner), LLCs can adopt the tax status of S corporations, C corporations, partnerships, or sole proprietorships — whatever works best for your business. Even better: LLCs can avoid double-taxation because they are a “pass-through” tax entity, meaning the income and expenses pass through the owners’ personal returns and said owner pays personal income taxes on any profit, so the company isn’t taxed again.


Not only can LLC owners avoid double taxation and enjoy the benefits of “pass through” treatment, but they may be able to deduct 20% of their business income with the 20% pass-through dedication established under the Tax Cuts and Jobs Act (TCJA) of 2018.


Maintain complete control


Often LLCs are small businesses run by entrepreneurial self-starters. As such, it’s important to note the autonomy LLCs offer. As a single member LLC, the owner can make any business decision without having to wait on approval or consultation from partners or a board of directors. LLCs afford business owners the best of both corporations and sole proprietorships: the liability coverage of corporations with the freedom to own, manage, and operate the business as a sole proprietor.


Deal with less paperwork


After reading the first few reasons, you may be wondering why it doesn’t make sense to just become a corporation. Those offer limited liability too, so what’s the difference?


Corporations have to adhere to specific requirements to maintain that classification, including holding annual shareholder meetings, producing and distributing annual reports, paying additional annual fees to the state, and electing corporate officers. All these administrative hassles usually don’t help a smaller, more informal organization thrive. Though LLCs may have to pay annual fees and have some sort of paperwork filing obligations, it’s on a much smaller scale than corporations are expected to abide by.


LLCs are flexible entities


As mentioned before, LLCs offer “the best of both worlds” when it comes to liability coverage and freedom to run the business, and this carries over into the flexibility LLC entities offer. Unlike corporations, LLCs aren’t impinged on by corporate regulations. They don’t have to use a formal structure, annually elect new officials, or equally distribute profits to their owners (usually because it’s agreed upon that one owner receives a greater share due to their larger contribution of time, money, or other resources in the startup phase). It gives the business room to grow, expand, and make decisions in the interest of the company without pressure from shareholders.


x

For more information and resources for aspiring solopreneurs and small business owners, head on over to www.mydreambridge.com.


2 views0 comments