When starting up a new business, many owners focus on the creation of their products or services. Another important step, however, they must also decide to structure as a sole proprietorship, partnership, limited liability company, corporation or another formation type.
Offering a hybrid-like organization type, many people choose to structure as limited liability companies. Considering some of the benefits of structuring as a limited liability company may help people determine if LLCs provide the right organization for their needs.
According to the INBiz portal, qualifying limited liability companies pay taxes at the member, or owner, and employee levels. Rather than the LLC filing business taxes, the profits and losses of companies structured in this way pass through to the owners. As such, they report the business’ income on their personal taxes. Other structure types, such as corporations, require owners to report business-related earnings on their own taxes, as well as to file taxes for the businesses, essentially resulting in double-taxation in many cases.
According to the U.S. Small Business Administration, structuring a business as an LLC provides members with some liability protection. With few exceptions, members do not risk losing personal assets if their businesses face lawsuits or bankruptcy. For example, the court will likely not require a person to give up property such as a second vehicle or the funds in a savings account for a liquidation bankruptcy filed by his or her LLC.
How business owners choose to structure their businesses often affects how they operate and grow. Therefore, people should take care when organizing their businesses to select the best-suited formation types.