When starting a business for the first time, part of the process usually includes choosing a business structure. Once you start reviewing your options, you will quickly find that there are many options to choose from.
It is important to do a thorough research and carefully consider your goals when deciding which structure is ideal for your business. Even so, many business owners have started to opt for the LLC (Limited Liability Company) structure in increasing numbers.
This can be an option that you should definitely consider. Read on to find out more. The following points will help you better understand the types of businesses that will benefit most from becoming LLCs.
What Kind of Small Businesses Should LLCs Be?
Almost all companies can theoretically qualify as LLCs. The types of services or products you offer may not necessarily affect whether or not you can form an LLC.
However, you should consider the current size of your business when deciding whether to form an LLC. Perhaps more importantly, you should think about future plans.
An LLC offers many protections that a company also offers. That said, there are major differences between the two.
For example, company owners essentially own stocks of stocks in their businesses. LLC owners who have already invested in the business have equity in the company’s assets.
In other words, if your company is likely to reach the point where you want to sell shares to members of the public, it has to be a corporation for you to do so.
This may not be a factor that will influence your decision if your business has few owners who are likely to run it with you indefinitely. If you don’t have any plans to sell stocks in the future, you may prefer forming an LLC over a business, as the process involved is much easier.
High risk business
One of the main benefits that an LLC offers its owners is protection from liability if the company suffers losses. In other words, if your company is in debt but it is an LLC, your personal assets cannot be seized.
For this reason, many entrepreneurs set up LLCs when starting businesses that are at relatively high risk of suffering losses. Knowing that their assets are protected gives them significant security.
While you might hope to make it a full-time job in the future, running your business right now can be a part-time job. In this case, if you decide on a corporate structure, you may not have much time to officially start your business.
This is another reason you might consider forming an LLC. Although it is important to familiarize yourself with the steps involved in forming an LLC, such as: For example, when preparing an official LLC operating agreement, you should know that forming an LLC is usually a straightforward process compared to other corporate structures. This can be ideal if you have limited free time because you already have another job.
Businesses on a budget
As a small business owner, you most likely have some of your personal income and assets invested in financing your business. You can do this in the future too.
If so, find out about the tax benefits of forming an LLC. In some types of business structures, profits are taxed first before they are distributed to the owners and then taxed again when the owners file individual returns.
LLCs are different. When forming an LLC, profits are only taxed when you file your tax return to ensure minimal taxation. This can be an appealing feature of the LLC structure if you are on a tight budget and want to protect your personal income from higher taxes.
In some cases, however, the cost of running an LLC prevents the tax breaks from delivering any significant benefit. Again, you should do a thorough research and review your financial situation when deciding whether an LLC is your best bet. It’s also worth noting that the LLC structure is relatively new as compared to other structures. As a result, the tax benefits of an LLC vary to some extent from state to state.
The most important point to remember is that there is no one corporate structure that is right for all businesses. The ideal structure for a small business may not be ideal for a thriving business. Hopefully these points have helped you get a clearer sense of whether an LLC structure is right for your business.