3 Reasons to Use an LLC to Form Your Business

3 Reasons to Use an LLC to Form Your Business

Starting a new business can be exciting and a bit daunting. Should you form an LLC? Incorporate? Borrow money to get started? Lease office space? Bring on a partner? There are many decisions you must make up front, some of which can have long-term implications.

One of the most important decisions you will make relates to the structure of your business. Many individuals begin their small business as the sole “employee,” reporting their earnings as income on their personal tax returns without creating a formal structure to minimize their personal liability. Others immediately incorporate without considering the strict reporting required by the government. A limited liability company (LLC) falls in between these two options, giving business owners some protection while requiring less stringent (and time consuming) reporting.

Here are three reasons you might choose an LLC to form your business:

  1. An LLC, as the name suggests, limits the liability of the owners. Individuals who operate a business without any formal structure are personally responsible for the debts of the business. This means another party could get a judgment against you personally and potentially collect it by going after your assets (bank accounts, personal property, etc.) Under an LLC, the assets and liabilities are owned by the company.
  2. While incorporating your business also limits your personal liability, corporations have specific requirements for reporting that must be filed with the state and/or federal governments. The requirements for an LLC are less rigid.
  3. In addition, corporations must name officers and have a board of directors. The “members” of an LLC must have a registered agent, but they can divide management responsibilities as they see fit.

While the attorneys at Brinkley Walser Stoner are not tax accountants, there are tax implications with each business structure that the business owner must consider. Under an LLC, income from the business is handled as a pass-through, and the business owner(s) report that income on their personal tax returns. This eliminates the need for the business to file tax returns and pay taxes at the corporate rate. We do recommend anyone with detailed questions related to the tax implications of each business structure speak with an accountant.

If you would like help getting your business set up in the best structure for your needs, contact Brinkley Walser Stoner today to schedule an appointment with one of our business law attorneys.