Business Formation: Is a Limited Liability Company Right for You?

By on 4-30-2015 in Business

Starting your own business will involve a long process that can be hard to accomplish. There are important decisions to make and crucial arrangements to be made. After coming up with a marketable idea, the first step of business formation is usually deciding what type of structure works best with your plans. As the website of Arenson Law Group, PC puts it, every type of business structure has its own advantages and shortcomings. It’s important that you learn the nuances that differentiate each type of structure to learn which one suits the type of business you’re planning to run. Only after you have learned about the many types, you can start and make a decision that best suits for you.

One of the legal structures you can consider is a Limited Liability Company or LLC. According to the U.S. Small Business Association (SBA), an LLC provides a legal structure that allows a business to combine certain characteristics that make partnerships and corporations. In an LLC, business owners (called “members”) have limited liability protection, protecting personal assets from lawsuits and debts. The business can also benefit from tax efficiencies and operational flexibility when there are multiple members involved. With an LLC structure, your business will not be considered a separate tax entity. Instead, all the taxes required by federal law will be passed on to the LLC members as part of their personal income tax.

On the flipside to these advantages, the SBA points out that an LLC often have a limited life. Depending on where your business is registered, you might have to dissolve your LLC once a member steps away from the operations. Members of an LLC are also categorized by law as self-employed and will have to follow appropriate policies about tax contributions and similar payments.

It’s important to note that not all businesses will qualify to register as a Limited Liability Company. As mentioned earlier, the structure you choose will depend on what type of business you’re planning to operate. These qualifications and requirements might differ depending on where you live, so it’s best to consult with an experienced business lawyer in your area.