Should Your New Business Become an LLC?
With the downturn in employment, many people are going from holding jobs to creating their own. Whether you have just started your own venture or still planning to do so, you may want to hear about the benefits of becoming an LLC.
LLC stands for Limited Liability Company and it is becoming one of the most popular forms of business organization because of the advantages it offers owners.
Setting up your organization from the onset as an LLC is easier than setting it up as a sole proprietor or other types of business. It is even feasible for you to convert your current business into an LLC, depending on how it is set-up.
If you launched your business as a sole proprietorship, you may have simply filed a DBA (doing business as) form in your area. It is possible that you may not have registered your business with the state. An LLC is one of the forms you may choose upon registering your business.
There are advantages and disadvantages when choosing to start your company as an LLC, but the most important advantage is that it provides protection from liabilities to the owners. In case an LLC venture fails for example, the owners would not be held accountable for loans made by the company. Owners also may not be personally liable if the business is sued for some reason.
Among the advantages is pass-through taxation, which means that owners can still file income or loss on there individual income tax returns. Other advantages are increased transparency with employees, creditors and other concerned parties; fewer restrictions or formalities when compared to corporations; and an adaptable management. There are also no business taxes, board meetings or board of directors, as ordinarily required from corporations.
The disadvantages of starting an LLC lie in the legalities and fees. In setting up an LLC, you have to file and pay the Articles of Organization in the state where you have registered your company. Some states even call for annual report or franchise fees. These are free however for sole proprietorships and general partnerships and is reasonably-priced for small businesses. It is also difficult to transfer ownership in an LLC because there are no stocks to be sold and any major changes must be unconditionally approved by all the owners.
While you may set up an LLC with only one owner in some states, others will require at least two partners. Another disadvantage is that owners are required to pay self-employment taxes, which they are bound to do anyway if it’s their only source of income.
Because of the legal forms required, many people who form an LLC hire attorneys to do the paperwork. Forms are also available on the Internet for those who feel competent at tackling those issues themselves. If doing the work yourself, be sure to find forms that comply with your state and research any special requirements you may need to meet.
Have questions about 5S or spill kits? Get the answers.
