Everything You Need To Know About An LLC
An LLC, or a limited liability company, is a business structure you can establish in the United States and some parts of the world.
Compared to other business structures, LLCs can offer significant benefits to business owners, particularly those just starting or planning to run a one-person business.
There are many reasons most business owners and entrepreneurs should consider registering their businesses as LLCs. To know those reasons, continue reading.
LLCs Protects You Against Liabilities
Most business owners start with a sole proprietorship—the most basic and straightforward business structure. With this structure, you will be responsible for everything your business does. If it has incurred debt, you’ll be liable for it. If someone wants to sue the company, it will be you who will answer that. Also, all the taxes associated with your business is attached to your income tax record.
If you file an LLC, it will separate the business away from you. It becomes its entity. If banks want to go after your business, they can’t do anything about you and your assets. Your personal life will be detached from the company. The business will need to deal with its problems and liabilities.
However, an LLC won’t shield you against everything. It’s already on the name: limited liability company. For example, if you cause harm to another individual, even if you’re on your company’s premises, you’ll be directly liable for that and not your company.
LLC Taxation May Confuse You At The Start
As mentioned before, the company gets separated from you when you become an LLC. It also includes taxes. To keep it simple, you’ll have an additional burden of filing separate tax forms for your company. Also, if you have partners or co-owners in the company, you must prepare the necessary tax files for each.
LLCs Are Fast To Register
You can start an LLC in hours. You don’t need to go through some of the complexities that forming a corporation requires. You don’t need anyone to be with you; you can start an LLC on your own.
LLC Is Not For Everyone
Before you get excited and register an LLC, know that everyone can’t have an LLC. The government may restrict individuals operating in specific industries when establishing an LLC. For example, most financial firms like banks, trusts, and insurance companies aren’t allowed to take advantage of this business structure.
Also, some parts of the country don’t allow professionals like architects, accountants, and doctors to form an LLC.
LCC Fees Vary By State
The amount of money you need to form an LLC varies by state. Some may charge you as low as US$50 and as high as US$500. Also, note that you may need to pay annual dues to keep your company. These dues also come with some necessary paperwork, so be prepared.
However, LLC fees might be higher than those needed to start a sole proprietorship.
LLCs Are Very Flexible When It Comes To Ownership And Management
You have more freedom in maintaining and managing your business. You can go at it solo or add employees if you need to. You can even have additional owners if that would help you run your business. And even if you add more business owners, you have complete power over the company. You don’t need to worry that someone can oust you as the CEO or override your business decisions.
LLCs Allow You To Partner With A Non-US Citizen
If you want to start a business with a person who doesn’t have US citizenship yet, you can do so by forming an LLC. Typically, the only residency requirement is that you live in the state where you’ll register your LLC. Also, to be sure that the LLC will push through, have a person who can receive notifications and mailings in the state where you’ll register.
LLCs Are Easier To Fund Than Sole Proprietorships And Partnerships
While sole proprietorships and partnerships can still get business loans, getting one approved is easier if your company’s an LLC. However, note that banks and lenders know that an LLC ultimately lowers a borrower’s risk. Because of that, most loaning entities may require you to agree to a personal guarantee as the LLC business owner. That personal guarantee may bind you to the loan and allow your creditors to hound you if your business loan defaults.
Those are the essential things you should know about LLC. An LLC is incredibly advantageous in certain situations. However, it doesn’t mean that it’s for everyone. Check out other business structures you can have before registering your firm as an LLC.