Many entrepreneurs that decide to go into business for themselves start small and begin operations as one person, with just some basic business registration to operate legally. However, there is one business structure that proves advantageous to both bigger and smaller businesses: the limited liability company or LLC. Here are ten reasons why LLC formation may be a good idea.
You Only Need One
An LLC can be started by even the smallest business of only one person. Any entrepreneur can enjoy LLC status for just a little bit more paperwork.
The Business Owner Is Not Personally Liable
One of the biggest advantages of LLC formation is the legal protection of a limited liability company. This means that if any financial misfortune occurs, the LLC member is not personally liable, and thus personal finances can’t be touched.
It’s Flexible
An LLC can grow. From one owner or “member,” it can be easily expanded to include other members as you hire and admit them. Members can be conferred with many administrative privileges to help manage a business.
Easy to Start
There aren’t many hoops to jump through for LLC formation. A little paperwork, administrative processes, and some fee payment are all required to gain LLC status, but this varies in specifics from one state to the next.
Pass-Through Federal Taxation
With LLC status, any profits derived from the business are exempt from federal taxes and go directly to members. Members pay taxes on profits from their own federal income returns.
You Don’t Need an Attorney
While some business structures require much expertise to set up, an LLC typically doesn’t need the expense of a lawyer. Some businesses, however, do have experience in quickly assisting clients with LLC formation.
Low Entry Fee
Depending on the state you reside in, fees for LLC formation range from as little as $40 to $500, which is still not a deal-breaking investment for many start-up businesses.
More Credibility
The perception of an LLC is that it is higher on the corporate ladder than sole proprietorships, which translates into more trust, credibility, and a generally positive reputation, especially in business dealings.
Less Corporate Paperwork
While an LLC offers many of the protections of a corporation, it doesn’t come with the same administrative commitments. LLCs don’t have a board of directors responsible for keeping minutes or having shareholder meetings.
Fewer Compliance Commitments
Creating an LLC formation has some compliance requirements, but far less than a corporation, allowing for greater flexibility and simplicity in company operations.