All entrepreneurs in Massachusetts face a basic structural issue when beginning a formal operation: the business formation type. While some first consider a sole proprietorship as the best option, the truth is that many could do better with a limited liability company that can help absorb some of the damage in the event that the business does not fare so well. Also known as an LLC, this is a very successful business format that is one of the most common in the U.S., and all business owners should have a good working knowledge of the advantages and disadvantages of creating one for their personal business.
A limited liability company acts as a business formation shield for the owner with respect to protecting personal assets if the business is not successful. All assets generated by the company that are not paid out in salary are property of the company. Additionally, although it is a business entity, it is not considered a tax obligation entity. Taxes on generated income are paid by the members as part of their personal obligation.
One of the primary disadvantages of an LLC is that it can have a limited lifespan. When a member leaves, the business agreement ends, and a new one must be established. While they are not exactly partnership organizations, they operate similarly and have some of the same characteristics. There are also registration fees that must be paid for getting started that a sole proprietorship will not require.
Possibly the most attractive aspect of a limited liability company is the flexibility that it offers regarding tax obligations and the ability to protect personal assets. This attribute alone is enough for any business owner to consider setting up their business as an LLC.