Starting a business is a major undertaking, so it’s critical that you make decisions that will build the foundation for your company. One thing that you have to decide is what business structure you’re going to use for your company. While some new business owners turn to the sole proprietorship because of the ease and favorable cost, it might be a good idea to look into the limited liability company (LLC).
Starting your company as an LLC draws a dividing line between the business and your personal assets. This means that if you’re sued or have other negative events related to the business, your personal assets won’t be touched. This means that even if something happens with the company, you wouldn’t be at risk of losing your home or other assets.
Flexibility in tax structure
Another benefit of an LLC is that there is flexibility in how you handle taxes for the company. You can use pass-through taxation, which means that you carry the profit or loss of the company on your personal income tax return. This means that any profits are only taxed once. Alternatively, an LLC can be taxed as a corporation, which means it will have its own tax return, but you would then have to file your income on your own personal tax return.
Determining the most appropriate business structure for your company is a major decision. It’s critical that you understand all the options and take the proper steps to start the company with your chosen option. Working with someone who’s familiar with small business entity structures may be beneficial.