A Limited Liability Company (LLC) is the most common type of business that is used by entrepreneurs because of the ability to have complete control over the business as well as being a certified legal entity. This type of business organization allows for a single or multiple owners and generally has less risk than other business types.
Why Is An LLC The Best Option?
The business structure of an LLC is unique because it is separate from you as an individual. This means that your personal assets are not attached to the actual business, and therefore you are detached from your business in the event of being sued as long as you operate correctly. This provides you with security from potential legal action. One common reason for suing would come from injuries that took place on your property. For example, with an LLC, real estate is purchased through the company, so you are not personally at risk.
An LLC also allows for anonymity. Your name can be kept off the public record and only your LLC’s name will appear when you make decisions through your business.
What About The Other Options?
The major difference between a proprietorship and an LLC for sole business owners is the liability protection that an LLC offers. In a proprietorship, your assets are accessible in any lawsuit or debt that may occur.
An LLC is a more flexible option compared to a corporation, making it a more suitable option for an entrepreneur. Corporations are held to strict regulation policies, which are not an issue for LLC businesses. Also, as an LLC, you may elect to be taxed as a corporation, which bypasses some of the formal regulations.
The taxation for an LLC requires a few decisions. If you are the sole-proprietor, then you can be taxed as a corporation or as the sole-proprietor, which is the default for the IRS. In this scenario, the finances from your LLC will go to your return, and are reported on your tax return. Then, there is only one tax return to be filed to cover you and your business. Corporations are taxed separately from the individual, so your business and you as an individual have to file separately. A single-member LLC assumes that all of the income will pass through to the individual’s SSN, unless you tell the IRS differently.
An LLC is a sound option because it also provides flexibility for expansion. It is simple to expand the number of members involved. It will likely be a much more smooth transition to add partners when you have an LLC compared to other business models.
The IRS requires an EIN (employer identification number) for certain LLCs. Sole-proprietors are allowed to the option to have an EIN though.
How to Get Started
Speak to a lawyer regardless of the type of business you are interested in starting. An LLC may be simpler than other business structures, but there are many legal issues that can arise. Be prepared for your future as an entrepreneur with the best help around you.