One of the first steps you will take when establishing your new business involves choosing how to structure your company. In taking this step, you may consider the various options, including establishing a limited liability company.
Before deciding whether to structure your new business as an LLC, you may benefit by considering some potential benefits and disadvantages.
According to the U.S. Small Business Administration, when you operate as an LLC, you do not pay corporate taxes on your company’s profits and losses. Rather, the gains and losses of your business pass through to your personal income and get taxed through your personal returns.
A potential downside, however, as a member or the owner of an LLC, you qualify as self-employed. Therefore, you have responsibility for self-employment Social Security and Medicare tax contributions.
For liability purposes, forming an LLC creates separation between your business and you and any other LLC owners or members. As such, you do not risk your personal assets, which may include your home, any vehicles you own and your banking accounts, to bankruptcy or lawsuits. Operating as a sole proprietorship or partnership, on the other hand, may jeopardize your assets. For example, you may have to liquidate some of your personal assets in a chapter 7 bankruptcy filing for your company.
Ultimately, you must consider your needs and future goals in choosing a structure type for your new business. The formation option you settle on may affect all aspects of your business, from how you get going to how you operate day-to-day and grow in the future.