If “form an LLC” is on your list of goals for the year, listen up. There are plenty of benefits to setting your business up as an LLC, but you’ll need to weigh those against the benefits of incorporating and decide which is best for your business.
Forming an LLC “Scotchgards” Your Company
Just like a corporation, your LLC is a great protective shield for your personal assets. If your LLC incurs debts or is sued, creditors and the court cannot take your personal assets to cover expenses. This gives you peace of mind in knowing you won’t jeopardize your family’s home or savings accounts if you start a business.
LLCs Require Fewer Hoops to Jump Through
Some people shy away from incorporating a business because they have to hold regular Board meetings, shareholder meetings, and file additional paperwork. That’s what’s neat about the LLC: you get all of the benefits of incorporation with less legwork.
You’ll File Your Taxes Once
When you operate as a sole proprietor, you may have to file personal and business taxes separately. But when you form an LLC, you get what’s called “pass through” tax treatment, meaning that you report your business’ profits and losses on your personal income tax forms. Just one filing!
You Can Allocate Profits (and Losses) as You See Fit
Another need-to-know fact about LLCs is that you can split profits and losses among shareholders as you see fit and aren’t required to do so in proportion to ownership interest. So if you’ve got three partners and one is more involved in the day-to-day activities, that person can get a larger portion of profit if you’ve formed an LLC.
There are Many Kinds of LLCs
All LLCs are not alike. See which fits your needs:
- Single Member LLC: if you’re the only owner, your SLLC is treated like a sole proprietorship.
- Domestic LLC: if you form an LLC in Texas and do business in Texas, you’re considered a Domestic LLC.
- Foreign LLC:if you form an LLC in California but do business in Iowa, you’re a Foreign LLC.
Where You Form an LLC Matters
Where you do the bulk of your business can help you decide where to form an LLC. If you do most of your business in the state you operate from, you’re better off forming an LLC in that state. But if you do business in multiple states, look at Delaware — it has the most developed and flexible corporate statutes in the country and is considered pro-business — or Nevada, which has no state corporate income tax, franchise tax and personal income tax.
Now that you’re armed with more knowledge about forming an LLC, give us a call and let us help you through the process!