Making Business Happen

What are the benefits of starting a business as an LLC?

On Behalf of | May 30, 2024 | Business Formation

People who want to open a business need to take the time to come up with a suitable plan before they open their doors. One decision they have to make is how they want to structure their new company. A single owner may consider a sole proprietorship, but that offers limited protection. Thankfully, individual owners and partners alike may also opt to establish a limited liability company (LLC) because of the benefits it offers.

One of the primary benefits of forming an LLC is the clear line that’s drawn between personal and business assets and liabilities. If the LLC is sued or has debts, the members’ personal assets aren’t at risk. This protects personal bank accounts, homes, vehicles and similar assets. Other benefits of choosing to operate a business as an LLC include the following.

Pass-through taxation

The default tax structure of an LLC is known as pass-through taxation. This means that the company isn’t taxed directly before the members are taxed. Instead, the members claim the company’s income on their personal tax returns. The members can also deduct business expenses for the LLC on their own tax return, which may lead to them having a lower taxable income. LLC members can also choose to have their business taxed as a corporation, if doing so is preferable.

Perpetual existence

While sole proprietorships and partnerships typically dissolve upon the death or withdrawal of an owner/its owners, LLCs can benefit from perpetual existence. This means that the LLC can continue to operate even if one or more members leave or pass away. An operating agreement can specify what happens in such events, ensuring the business’s continuity and stability. This feature makes LLCs more resilient and can provide peace of mind for members knowing that the business can endure beyond their involvement.

While LLCs are typically easy to get set up, business owners should turn to a legal representative to ensure they have everything in order. This includes the filing for the LLC, as well as establishing company policies and procedures. Getting everything in order before a company opens can offer valuable protection for the business. Additionally, having a legal representative already familiar with the company is beneficial if there’s ever a legal matter that needs to be addressed down the line.