Limited Liability Companies (LLCs) are among the most common business forms. The structure is easy and affordable to file for and they’re a generally flexible model, but they do have their limits. In particular, LLCs are limited by their inability to issue stock to raise money, which can restrict their ability to grow. Overall, however, LLCs have more benefits for new operations than limits, particularly from a financial perspective.
The Protective Mechanism
One of the best recognized benefits of forming an LLCs is the way in which the model protects its member parties. As long as you handle your finances appropriately, the LLC model protects your personal assets if your business runs into financial problems, such as having to file for bankruptcy. This is an important factor for the average individual who wants to try their hand at entrepreneurship but who can’t afford to risk substantial losses, such as having their house or car on the line.
Starting a business without the proper supports can be stressful and lead to countless costly blunders, but hiring a business coach or other guide can be pricey. This doesn’t have to be the case for LLCs, though.
There are many companies offering free LLC formation guides, videos, articles, and other supports for the process. These can point you to helpful loans, document templates, and other cost-saving services designed to help your business succeed. There are far fewer free resources for other business models.
Cost Of Formation
As noted above, LLCs are popular at least in part because they’re affordable to form and maintain. Fees vary by state, but compared to other structures, the cost is usually negligible compared to the potential gains. You’ll also save on administrative costs, since LLCs don’t need to hold annual meetings or fulfill onerous documentation requirements.
Many small businesses balk at the burden that forming an LLC creates in terms of having to pay self-employment taxes, and it’s true that self-employment taxes are high. However, if you’re working with a savvy accountant, you may find that you’ve been overpaying. LLCs often qualify for special tax credits, for example. Additionally, many new LLC owners find themselves overpaying because they aren’t taking the right deductions.
It’s not just access to tax credits that can benefit LLCs. LLCs actually have choices about how they are taxed, a rare circumstance in either the personal or business world. LLCs can avoid common business issues like double taxation by opting for pass through taxation instead. Depending on the state, some LLCs are also exempt from franchise taxes.
Before you start filing for an LLC, you need to do your research and ensure that it’s the best model for your business, but the reality is that most businesses can at least start out as an LLC with no negative ramifications. If, however, your business grows or makes changes such that functioning under the LLC heading is no longer appropriate, you can file an article of amendment and make the transition to another model.
Remember that you have options – the LLC may just be the best one.
Interesting article about companies: “What is a Limited Company?“