Entrepreneurs have several decisions to make when they’re starting a new company. One of these is what type of business structure to use. For a new small business, one option that’s present is a limited liability company (LLC).
An LLC is a rather simple business structure that has very specific benefits that make it an attractive option for many people. Understanding these benefits may help entrepreneurs to determine if this is the best option.
Division between personal and company financials
Forming an LLC establishes a dividing line between the company’s assets and debts and the owner’s. This means that if the company gets sued or has debts, the owner’s personal assets can’t be claimed to satisfy those. There is an exception to this, which may occur if the owner’s and company’s assets are commingled.
Flexibility in how the company is run
LLCs sometimes have more than one owner. It’s up to the owners to determine how the company is run. Some owners choose to run the company themselves. Others opt to hire outside managers to take care of the day-to-day operations.
Pass-through taxation
The income taxes on an LLC’s profits are typically paid on the owner’s personal tax returns. This makes it easier for the taxes to get paid. If that’s not suitable for the situation, LLCs have the option of being taxed as a corporation.
Ensuring the legal matters for a company are handled appropriately is critical for any entrepreneur. Seeking the assistance of someone who understands the ins and outs of starting a small business is important.