Reasons Why Your Small Business Should Likely Be An LLC

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Reasons Why Your Small Business Should Likely Be An LLC
November 17, 2022

As a small business owner, you have a lot of things to think about. From managing day-to-day operations to keeping up with the latest industry trends, finding time to focus on anything else can be tough. However, one thing that you should make time for is ensuring that your business is structured in the most advantageous way possible.

You can choose from several different business structures, including the most popular form – the LLC or limited liability company. LLCs are perfect for small businesses for some reasons, which we will explore in more detail below.

What Is an LLC?

Before diving into an LLC's benefits, it's important to understand exactly what an LLC is. An LLC is a business structure that combines some of the best features of sole proprietorships and corporations. Like sole proprietorships, LLCs are relatively easy and inexpensive to set up. And like corporations, they offer their owners limited personal liability protection.

An LLC is formed by filing articles of organization with the secretary of state in the state where the LLC will be doing business. Once the LLC is formed, its owners (called members) can start running the business.

Now that we've answered the question, "what is an LLC?" Let's take a look at some of the specific benefits that LLCs offer small businesses.

Benefits of an LLC : 

1. Personal Asset Protection

As a small business owner, one of your biggest concerns is likely protecting your assets. If a business is sued, you don't want assets (such as your home, car, and savings account) to be at risk. This is where an LLC can help. An LLC offers personal asset protection if your business is sued. This means that if your business is ever sued, your assets will not be at risk.

2. Tax Advantages

Another reason your small business should likely be an LLC is the tax advantages. LLCs are taxed as pass-through entities, meaning the business is not taxed. Instead, the profits and losses of the business are "passed through" to the owners, who then report them on their income tax returns. This can offer significant tax advantages for small businesses.

3. Ability to Raise Capital More Easily

While an LLC can be used to raise capital, in this case, it's actually more common to use a traditional corporation. A Corporation is often preferred by venture capitalists and angel investors. However, if you're just raising money from friends and family, an LLC can work as well.

4. Easy to Set Up and Maintain

LLCs are relatively easy and inexpensive to set up and maintain compared to other business structures. In most states, all you need to do to form an LLC is file articles of organization with the secretary of state. Once the LLC is formed, very little paperwork is required to maintain it.

5. Simpler and Less Expensive to Form:

Finally, LLCs are typically simpler and less expensive to form than corporations. In most states, all you need to do to form an LLC is file some paperwork and pay a filing fee. You also don't have to hold annual meetings or keep minutes like you would with a corporation. This makes LLCs a great option for small businesses that want to save time and money.

How to form an LLC for a small business : 

There are a few key steps you'll need to take when forming an LLC for your small business, including:

1. Choose a name for your LLC.

2. File the articles of organization with your state.

3. Create an operating agreement.

4. Obtain an employer identification number (EIN) from the IRS.

5. Comply with any additional LLC requirements in your state.

Let's take a closer look at each of these steps:

1. Choose a name for your LLC: 

In most states, for example, when forming an LLC in Texas or Florida, you'll need to choose a name for your LLC that is different from the names of the other businesses in your state. You may also need to include certain words or abbreviations in your name, such as "LLC," "Ltd.," or "Ltd. Co." Check with your state's secretary of state office to find out the specific requirements in your state.

2. File the articles of organization with your state: 

This is the document that officially forms your LLC. In most states, you can file the articles of organization online, by mail, or in person.

3. Create an operating agreement: 

This document outlines your LLC's ownership and management structure, as well as the rights and responsibilities of the members. The operating agreement is not required in all states, but it's a good idea to have one even if it's not required.

4. Obtain an employer identification number (EIN) from the IRS: 

An EIN is a nine-digit number used to identify your business for tax purposes. You can apply for an EIN online, by mail, or by fax.

5. Comply with any additional LLC requirements in your state: 

In some states, you may need to publish a notice of your intent to form an LLC in a local newspaper. You may also need to file additional paperwork with your state, such as an annual report. Check with your state's secretary of state office to find out the specific requirements in your state.

After you've completed these steps, you'll be ready to start operating your LLC. Remember, keeping up with the ongoing maintenance and compliance requirements for LLCs in your state is important. Failure to do so could result in your LLC being dissolved.

Conclusion

As you can see, there are many good reasons why your small business should likely be an LLC. LLCs offer personal asset protection, flexibility in management and ownership, and tax advantages. Plus, forming an LLC is typically simpler and less expensive than forming a corporation. So if you're looking for the best way to protect your business and save money, an LLC is worth considering.

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Reasons Why Your Small Business Should Likely Be An LLC
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