If you intend to start a new business, you have to make a lot of decisions. From company logos and business practices to insurance coverage and the legal format that your business takes, there’s a lot on your plate.
Business formation is one of the most important steps in establishing a new company, and choosing the right business entity for your needs is critical at this stage. While you can potentially change your business later, setting it up right from the beginning is the easiest and most cost-effective approach in most cases.
Business models lend themselves to different business entities. Partnerships, sole proprietorships and corporations are just some of the options available. Many people starting a business find that an LLC offers a beneficial balance of protections with a relatively straightforward formation process. Is an LLC the right option for your business?
What are some of the benefits of an LLC?
LLC is an acronym for the term “limited liability corporation.” As you may be able to infer from that name, an LLC helps protect the person or people starting the business from liability associated with the company.
If the business fails, if an employee gets injured or if a product has a defect that leaves a consumer severely hurt, an LLC can protect you as an individual from incurring the consequences of the business’s failure. An LLC will prevent creditors and those with a personal injury claim or financial claim against the company from going after you as an individual or your personal assets.
There are also tax benefits to forming an LLC, as well as the benefits that come from the perceived formality of such a structure when it comes to establishing your brand.
What are some of the drawbacks of an LLC?
There are drawbacks to establishing an LLC. For example, you will have to file an annual report about your business which comes with an annual fee that you have to submit to the state.
Additionally, there could be more costs associated with the start-up process and annual tax filings than with simpler business structures like a sole proprietorship. You will also have to take great care to ensure that you keep your finances separate from the business in order to maintain the protections offered through an LLC.
If you think that an LLC might be the right formation for your business, getting help as you plan and create the company can help you avoid common pitfalls and maximize your protection.