3 benefits of LLC formation for first-time small business owners

On Behalf of | Jan 21, 2022 | Firm News | 0 comments

The U.S. is a place where aspiring entrepreneurs from all walks of life can pursue their dreams of becoming a business owner. Many small businesses flourish every year, thanks to the support of the United States government. If you are in the process of launching your own startup, there is much to do. The first step is selecting your business structure.

There are typically four common entities available: sole proprietorships, partnerships, corporations and limited liability companies. The latter is especially advantageous for business owners getting their feet wet.

1. Reduced risk of personal liability

As you may infer from its name, one of the key features of an LLC is limited personal liability. With an LLC, you as a business owner will greatly reduce you risk of being held personally responsible for losses incurred by your company. A cross between a corporation and a partnership, a LLC structure protects you from having your personal assets targeted in the event of a contract-based dispute or legal proceeding.

It will also insulate you from personal liability for tort claims arising out of the conduct of your employees. However, as with all forms of entities, it will not insulate you from exposure to liability for any torts you happen to commit personally in the course of operating your business. Fortunately, a solid insurance program – which is necessary for any type of business – can provide protection against those types of claims.

2. Greater flexibility

Choosing to form an LLC also means you have greater flexibility in how it’s managed. Corporations must be operated in strict compliance with “corporate formalities.” With an LLC, most such formalities may be dispensed with, making it a much easier type of business entity to operate.

3. Tax advantages

The IRS taxes LLCs as pass-through entities, like sole proprietorships and partnerships. Unlike regular “Chapter C” corporations, your LLC will not be subject to the double taxation. As a business owner, you will pay individual income taxes on your entity’s earnings, but the entity itself will not be subject to income taxation.

Additional guidance?

LLCs provide tremendous benefits to small-business owners looking to fulfill their dream of starting their own company. However, each situation differs. Seeking the guidance of a business law attorney in your area is advised in order to ensure you are forming the right type of business entity to protect your interests and investment, and to ensure that you do so correctly.