Watching your new business’s growth is an exciting time. As you notice the demand grow for your goods and services, you may start to think about what steps you should take towards making sure your business has the proper legal structure.
With several options to choose from, it can be challenging to know the best option for you. It is important to think about the needs of your business and how to protect your interests.
These are some of the advantages and disadvantages that come with filing your business as an LLC.
Advantages of an LLC
An LLC, or limited liability corporation, offers a lot of flexibility. When it comes to management, you can operate it similar to a sole proprietorship, a general partnership or a corporation with a board of managers.
Another appealing aspect of an LLC is its simplicity. It is important to talk to someone who can help you understand what makes one entity a better option for your business over another, but when it comes to the daily administration of an LLC, there is significantly less formalities and maintenance for an LLC when compared to other entities.
Also, organizing your business as an LLC also gives you flexibility when it comes to tax time. Since profits and losses typically are passed through the business directly to its members, you can have greater flexibility when filing your company’s taxes. Limited liability companies combine the pass-through taxation of a partnership or sole proprietorship with the limited liability traditionally enjoyed by corporations.
An LLC is not the best fit for every business
Like the other options for business entities, an LLC is not the right choice for every business. While an LLC is flexible it may have certain limitations for certain types of businesses.
For example, limited liability companies do have some additional administrative costs and requirements when compared to a sole proprietorship or partnership. In addition, profits from an LLC are typically subjected to self-employment taxes of their members which may not be as advantageous for tax purposes as alternative structures.
When it is time to get started, it is important to talk to someone who is knowledgeable in business structure and organization so you can understand the risks and rewards that come with each type of alternative business entity.