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3 reasons why many small business owners form LLCs

On Behalf of | Mar 13, 2023 | Business Law

The United States is a land rich in businesses, small, medium and large. According to the U.S. Census Bureau, it was home to almost eight million small ones in 2022.

When starting a small business, one of the major decisions entrepreneurs must make is what kind of business to form. Many choose to form a limited liability corporation for a number of reasons.

1. Personal liability protection

One of the biggest advantages of an LLC is that the government views it as a completely separate entity from the business owner. This protects the owner from any personal liability should the business encounter legal or financial troubles. If a company or individual files a claim against the business, it is against only the business and not the entrepreneur. Similarly, debt collectors also cannot lay claim to the entrepreneur’s personal funds or property, only what belongs specifically to the company.

2. Less paperwork

There is considerably less paperwork involved with LLCs than with other structures. For instance, corporations, which must answer to boards, involve many meetings and thus a great deal of paperwork. There are fewer requirements in general, which also contributes to the smaller amount of paperwork.

3. Tax benefits

LLCs are flexible when it comes to taxes. Rather than falling into one single classification, an LLC may fall under the umbrella of a sole proprietorship, corporation or partnership depending on the business owner’s needs or wants. This allows for pass-through taxation. The revenues fall under personal income for tax purposes rather than business profits.

An LLC falls somewhere between a partnership and a corporation, allowing it to enjoy the advantages of both statuses. However, it may not be the best business structure for everyone. It is important to determine the appropriate business structure based on each individual entrepreneurship’s circumstances.


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