Small Business Startup Series: Limited Liability Companies
This is the second installment in our series on starting your small business, securing funding, and navigating taxes.
You’re fired up about your new business. And you should be, it’s exciting! But if you want that feeling to last, you must lay a solid foundation. That means choosing the right business structure at the outset.
Last week we looked at sole proprietorships. It’s inexpensive and easy to start, but it doesn’t offer much liability protection or tax benefits. If these are concerns, you may want to look into a single or multi-member limited liability or LLC. Let’s look at the pros and cons of these types of LLCs so you can see if it’s the best structure for your business.
Legal advantages of an LLC
The most significant advantage of an LLC over a sole proprietorship is security against creditors and legal action. Your personal assets, like your home and vehicles, are largely protected if someone goes after your LLC. Also, if an LLC declares bankruptcy, that action is separate and distinct from the owner’s personal finances. And if you have employees, an LLC can potentially shield you from personal liability for their actions. Finally, if you plan to have more than one owner, a multi-member LLC is the easiest and least expensive business structure to use.
Be aware that there are some caveats to liability and bankruptcy protection with an LLC. So, do more research or speak with a business attorney.
Drawbacks of an LLC
LLCs are more expensive to set up than sole proprietorships. Registering a Louisiana business as an LLC will cost a few hundred dollars. So, there’s still plenty of paperwork even though the process has become more streamlined over the years.
Also, a separate tax return must be filed if the LLC has more than one member at any time. That’s another expense.
Still, if an LLC is your best option, it’s best to start learning more about them. Check out this article on how to set yours up in Louisiana.
Putting it all together
You should get an LLC if you are worried about liability or plan on having more than one owner. Making the right choice can be challenging. And if the three things mentioned above are not a concern, then a sole proprietorship may be the way to start.
So, keep learning and seek guidance if you have questions. Finally, keep an eye on growth. A CPA can help you determine the best time to form an LLC. And be sure to check out next week’s post on funding your startup.