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Do I Need a Limited Liability Company (LLC)?

Starting a new business is exciting and for me it was terrifying for all the things I did not yet know on running my own business.  One of the fundamental decisions entrepreneurs face is choosing the right entity type for their vision. Limited Liability Companies (LLCs) are a popular choice due to their flexibility and the protection they offer to business owners. Below are some factors to consider when deciding whether you need an LLC for your business.

  1. Liability Protection.  One of the reasons many entrepreneurs opt for an LLC is the limited liability protection it provides. In an LLC, where business assets are kept separate from personal assets; personal assets are generally protected from business debts and liabilities. This means that if the business faces legal issues or financial challenges, your personal assets are less likely to be at risk though keeping a distinct separation of business and personal assets and liabilities is one imperative step to maintaining the liability protection.
  2. Simplicity and Flexibility. LLCs are known for their simplicity in terms of formation documents and filing with the Secretary of State along with ongoing maintenance of the LLC. They require less paperwork and formalities compared to corporations. Additionally, LLCs offer flexibility in terms of management structure and profit distribution, making them an attractive option for small businesses.
  3. Tax Advantages. LLCs usually have pass-through taxation, which means that any business profits and losses are reported on the owners’ individual tax returns not a separate tax return for the LLC. This can help avoid the possibility of double taxation that found in some corporate structures. However, it’s important to consult with a tax professional to understand the specific tax implications for your business based on your specific business, owners, and formation documents.
  4. Scalability.  LLCs are can be used on various size and structured businesses. They are a common entity for a sole proprietor, a partnership, or a business with multiple members.  The LLC framework can be scaled bigger or smaller as your business and people involved change to adapt the entity as your business evolves.
  5. Decision Making.  Typically, in an LLC the owners, Members, are the ones with the decision-making power, having day-to-day and big picture control.  For entrepreneurs who want a hands-on approach and the ability to make decisions on their own, without waiting on the formalities of a board of directors, an LLC is a great tool.

Before deciding if an LLC is the right structure for you vision you should consult with an attorney to explore all the options available to you.  An attorney can help you assess your unique situation, goals, assets, potential debts and liabilities and outline the best option for your next venture.