Maybe you already have a business? Perhaps you’re starting a business? Whatever the case may be, you’re thinking about forming an LLC.
The question is: should you? The answer? Maybe.
There are many reasons to start an LLC, and they may or may not be attractive to you. Read on to see what they are.
1. Complete Control of Your Business
An LLC is typically seen as a step up from a sole proprietorship. As with a sole proprietorship, it offers the business owner almost complete control over the way that the business is run. This differs from an S or C Corp, which generally involves a board of directors getting a say in all of the business decisions.
Now, this isn’t to say that LLCs can only have one owner. Partnerships can create LLCs. But the dealings of LLC partnerships aren’t regulated by the government.
Instead, the partners get to decide together on what’s appropriate for the business. Neither shareholders nor the government gets a say. This level of freedom is welcomed by many small business owners, in particular.
You can learn more about the differences between LLCs and corporations by reading these Garrett Sutton books on corporations.
2. Little Legal Liability
LLC literally stands for Limited Liability Company. So, as you might expect, by making your business an LLC, you take on very little legal liability.
Yes, the business itself can still be held legally liable. But you, the owner (and your individual assets), are almost entirely protected against lawsuits.
Let’s say your business fails; if it’s an LLC, the funds in your personal bank account will be safe. Let’s say your business is sued by a customer; you, as the owner of the business, will face no personal repercussions (except in very select situations).
You don’t get this type of protection from a sole proprietorship. As such, if you’re taking out loans or dealing with customers on a regular basis, you should upgrade to an LLC.
3. Cheap Application Fee
You might be under the impression that starting an LLC is expensive. But, in truth, the application fee for an LLC is quite reasonable. In most cases, it hangs around $130, with some states charging as little as $40 and other states charging no more than around $500.
Sure, that’s still a decent chunk of change, especially if you’re just getting your business off the ground. But, for all of the benefits that you get with it, it’s most definitely a reasonable price.
Yes, you can likely start a sole proprietorship at no cost at all. Note, though, that you’ll receive no individual legal protection. That’s a big risk to take, particularly if you’re dealing with a number of different clients or customers.
4. Tax Savings
There are also some tax savings to be had when running an LLC. These perks present themselves in a few different ways and will almost certainly help to make the most of your revenue.
The biggest tax perk provided by LLCs is “pass-through” eligibility. Pass-through eligibility enables the business owner to pay taxes just once (on his or her personal income), rather than twice (on his or her personal income and on business revenue). This enables LLC owners to save substantial amounts of money when compared to, say, owners of C corps.
There’s also the 20% “pass-through” deduction. This enables pass-through-eligible business owners to deduct up to 20% of their business revenue on their yearly tax returns.
5. Easier Taxes
When you run a corporation, you must file taxes twice: once for the business and once for yourself. So, not only must you fill out twice the paperwork, but you must also attend (and pay for) twice the tax preparation meetings
This is not true of LLCs. LLCs only require you to file personal taxes, and therefore allow you to file just as any typical employee would. So, in short, an LLC makes doing taxes much easier.
6. Added Legitimacy
When it comes to the success of a business, legitimacy is everything. Customers, clients, and partners are much more willing to do business with a company that appears to be legit.
This is one of the many instances in which an LLC can be truly advantageous. When a customer or client or partner sees an LLC behind your business name, he or she knows that your business takes itself seriously. This might not be true of a sole proprietorship, which can come across as much more informal and, therefore, much less legitimate.
If you’re looking to push your business to the next level, adding an LLC to the end of its name would be a great way to do so.
7. Relatively Little Paperwork
There’s a lot of paperwork involved in running a business. That’s fine when your business has 100 employees and you can perpetually hand the task off to someone else.
But what if your business has fewer than 10 people? This is when it’s wise to utilize an LLC designation.
Yes, running an LLC involves its fair share of paperwork. That said, it’s nowhere near as much paperwork as is needed when running an S corp or a C corp.
Running an S corp or a C corp involves intensive collaboration and planning. The amount of paperwork needed to facilitate this can be mind-boggling.
LLCs, on the other hand, generally just require that you fill out an application and pay a fee. There may be sporadic paperwork needed throughout the year, but it can be easily handled by a single person.
Ready to Start an LLC?
Now that you know its benefits, are you ready to start an LLC? Maybe a different type of business designation is more appropriate for you? Regardless, it’s time to do your research, see which designation best suits your business, and get that thing a-running!
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