When you start a new business, there are several different ways you can structure it. Each business structure has its own strengths and weaknesses.
If you start a limited liability company, you can combine the advantages of several different business structures in one. Nevertheless, an LLC also has its own disadvantages.
What are the advantages of an LLC?
The main advantage of an LLC is right there in its name: limited liability. This means that, if you incur business debts, the business structure protects your personal assets so that you only have to use assets related to your business to satisfy the debt.
According to the Small Business Administration, a corporation also provides limited liability. However, a corporation is a separate entity, meaning that you may have to pay taxes on your profits on your personal income taxes and then pay corporate taxes as well. An LLC offers pass-through taxation so that you only have to pay taxes on your profits once.
What should you do before starting an LLC?
You can start an LLC either by yourself or with one or more business partners. In the latter case, before you start the company in earnest, you should draw up an agreement with your partners regarding the transfer of ownership, including buying or selling interest in the company.
If you do not have such an agreement in place before you start your LLC, you may have to dissolve the LLC when adding or losing and member and then form it again with the new membership. Having an ownership agreement in place when you start up your company may save this extra step.
