One of the primary decisions that a business owner has to make is deciding what type of business structure to use for the company. Sole proprietorships, limited liability companies (LLCs) and corporations are three of the common structures some business owners use.
The LLC is one of the more common options for new small businesses because of the ease of establishing the LLC and the dividing line between the company and the owner.
Division between owner and business
One of the key benefits of an LLC is that it provides limited liability protection. This means that the personal assets of the owner are generally protected from business debts and lawsuits. If the LLC faces financial trouble or legal claims, creditors typically can’t pursue the personal savings, homes or other assets of the owner as long as there’s no fraud and the finances of the business and owner are separated.
Pass through taxation
By default, profits and losses pass through to the owner’s personal tax returns, avoiding double taxation. This is known as pass-through taxation. Alternatively, an LLC can elect to be taxed as an S corporation or C corporation, depending on the business’s financial goals.
Ease of operation and management
Unlike corporations, LLCs have fewer formal requirements. There is no need for a board of directors, shareholder meetings or complex record-keeping. Instead, owners can manage the business themselves or appoint managers to handle daily operations. This flexibility makes LLCs an attractive option for entrepreneurs who want a simpler business structure.
Once the business structure is chosen, the business owner can move forward with other aspects of opening the business. Ensuring they have the assistance of someone familiar with these matters may be beneficial.