In this entry we will weigh in on the decision to form a structured business entity or not.
To LLC or not to LLC, that is the question. Many aspiring entrepreneurs get so amped up about their great idea, they hit the ground running at a hundred miles per hour without pausing for a second to make sure that they take the appropriate steps to protect themselves and their idea from the dangers that lurk in the shadows. In this edition of “When the Dust Settles” we will touch on the different business structures currently available.
When entrepreneurs feel led to pursue their dreams, the first thing they should consider is how to legally structure the new business. This is a very important decision. The SBA.gov website is a good place to start to find out the differences between each structure. The different structures include: Sole Proprietorship, Limited Liability Company (LLC), Cooperative, Corporation, Partnership and S Corporation. I will only touch on two of the most common favorites of start-ups for the sake of brevity.
A Sole Proprietorship is the simplest structure one can form. If a person participates in his or her business activities and is the only owner, they are automatically considered to be a Sole Proprietor. Taxing of a Sole Proprietorship is the easiest of all structures because there isn’t any separation between the business and the owner. A major benefit of a Sole Proprietorship is the owner has complete decision making responsibilities of the business. A major disadvantage is the owner assumes complete liability of the business and employee actions which could put the owner’s personal property at risk.
A Limited Liability Company, LLC for short, is a very popular structure choice. I personally prefer this structure as it is a wonderful choice for start-ups. Because it is a formal structure, there are a few things that you must follow to form an LLC. Your business name must be unique within your state, LLC or “Limited Company” must be included in the name, and it can not contain certain name restrictions defined by your state. The owner or owners or an LLC are considered to be a member or members. A major benefit of an LLC is the members have limited liability of the actions of the business providing some personal protection. It is the responsibility of an LLC’s members to obtain the appropriate licenses or permits required by their state to conduct business. Taxing of the LLC is passed through to the members.
There are a lot of wonderful resources out there to help an aspiring entrepreneur make an informed decision on what structure to form. I would even recommend consulting with a local attorney or tax professional to assist in laying out a plan that would take into account the current needs and identify any future hurdles. A well informed decision is a good decision. I hope you enjoyed this edition of “When the Dust Settles”. Please share it with others that you may think may benefit from this series, and don’t forget to like/follow us on our social media links at the top of the page. Thanks for stopping by.