One of the first decisions that a new entrepreneur has to make is what type of business structure to use. For some, a sole proprietorship might be their first option because of the simplicity of this option. Before making their final decision, they should consider the benefits that come with a limited liability company (LLC).
While an LLC might involve a little more work to establish, the benefits are often worth that bit of effort. This is particularly true if there are major financial investments or risks associated with the business.
Pass-through taxation
Most LLCs use pass-through taxation, which means that the owner of the business pays the income taxes for the company on their personal return. It’s critical to understand how these taxes are handled. If the owner doesn’t feel comfortable with that option, they can choose to have the business’s income taxes filed through a corporate return.
Division between the owner and the company
An LLC also creates a dividing line between the company and the owner. This helps to protect the owner’s assets in case the company has debts it can’t pay or a successful legal claim against it. In most cases, the owner’s assets can’t be seized to cover the business’s debts or liabilities.
Starting a business is a major undertaking that requires the owner to ensure they’re taking the proper legal steps. This can protect the company and the owner. Working with someone who’s familiar with this process may be beneficial.
