How To Choose An LLC Entity
Part of being an entrepreneur is having to take on additional financial responsibilities and risks for the benefit of growing your business. Imagine you are an established individual who has accumulated property, assets, and money. If you choose to invest in your own business, to what extent are those things mentioned above protected should your new business venture fail?
The answer to that question will be rooted in how you structured your business and chose a business entity. The common types of entities that people choose from are as follows:
- Sole proprietorship
- Limited Liability Companies (LLC)
- C Corporations
- S Corporations
Deciding on which entity is appropriate for your business will be determined by your acceptable level of personal risk, tax benefits, your potential for future investors, and the costs of operating your chosen business entity.
An LLC has pass-through taxation. The LLC owners (also called members) take their profits from the business and pay taxes on it through their income taxes. Also, an LLC includes limited liability. This means that liability will not exceed the amount of money that went into the company.
There is a clear distinction between company assets and personal assets with an LLC.
Why Choose an LLC?
The most common type of LLC is single-member LLC. The LLC owner becomes solely responsible for the business’s finances, such as taxes and any debt the company accumulates.
Imagine your business. Now think of all your assets. Between the two is your LLC. Ultimately, by choosing an LLC, you take advantage of corporate and partnership business entities. In addition, should your business face civil lawsuits or bankruptcy, your assets cannot be taken by the court or creditors.
Questions To Ask Your Attorney
While you are in the process of creating an entity for your business, there are questions you should ask your attorney. In terms of an LLC, you need to know how long it lasts.
Secondly, you likely intend for your business to grow. Growth comes in various ways. If you take on a partner, how does this impact your LLC? What if you sell the business? Does your entity status go with it?
The answers to these questions will vary by state. Through your attorney, you will devise the plan that best protects you and your interests. What level of risk does your business face? The higher the risk, the more you want to ensure your personal property isn’t subjected to the same level of risk.
Maxwell Dunn – Your Trusted Business Advisors.
At Maxwell Dunn, we are a business advisory firm. Our legal advice and solutions are based on what is best for you and your business over the long term. If you plan on starting a business, choose the correct business entity to protect yourself. Contact us to schedule a consultation and review your options!See all videos