If you have ever considered starting your own business, then you might think: What is a limited liability company, do I need one?
LLC represents a limited liability company, and it is a good choice for small business owners seeking a legal way to set up.
This kind of business structure not only makes your company sound more formal, but also brings certain legal benefits (such as liability protection) and tax incentives to business owners.
We spoke with six experts (from lawyers to financial coaches) to help us understand the ins and outs of limited liability companies. Their (free!) advice will help you determine if an LLC is right for you.
What does LLC mean?
A limited liability company is a way to organize your business while also providing some additional benefits.Tony Grenier, CEO Instrumental Universal, An online music teaching website, broke it down for us.
“A limited liability company (LLC) combines the advantages of a sole proprietorship, c company, and partnership,” Grenier said. “It basically provides flexibility in management, profit and loss division, and tax incentives.”
Unlike other business structures, limited liability companies are relatively easy to get started, especially for individual business owners
“A limited liability company is a company that requires only one member or employee, and that individual can participate in the daily operations of the company,” said Annette Harris, financial coach Harris Financial Coach.
Another unique aspect of LLCs is that applicants do not necessarily need a lawyer to get started. Depending on the state you live in, you can register your LLC online. Once you have started your business entity, you will not be subject to as many restrictions on how you run the company as you do in the company.
“For companies, it is easy to be overwhelmed by mandatory red tape, meetings and management,” said founder Adam Garcia Stock fool, Educational Investment Website. “There are fewer LLCs, and it’s easier to set up and run as mentioned earlier.”
What can a limited liability company do for my business?
One of the main reasons to get a limited liability company is that it provides you with considerable protection as a business owner.
“Limited liability companies allow business owners to limit their personal exposure to assets and liabilities to the financial obligations of the business,” said Kimberly M. Hanlon, a business lawyer. Law shines.
Since all businesses bear a certain degree of legal risk, a limited liability company is a way to protect your net assets from any type of legal battle due to your business.But limited liability companies are not just for protection, they also provide good Tax incentives It also applies to commercial entities.
“In terms of taxation, limited liability companies are attractive because there is no double taxation,” Garcia said Stock fool“This is different from a company. In a company, you need to pay corporate tax, while the owner needs to tax its dividends.”
Due to the 2017 Tax Cuts and Employment Act, owners of limited liability companies are also entitled to a new tax relief called Qualified Business Income (QBI) deduct.
Tips for forming a limited liability company
If you are serious Form a limited liability company, You need to keep some things in mind. The following are some advanced tips for successfully registering and owning a limited liability company.
Use a lawyer only if you really need a lawyer
Working with a law firm can be very expensive, and although in some cases you may need a lawyer, you do not need a lawyer to form your limited liability company.
If your state requires you to sign an operating agreement (which outlines the agreement between LLC members), if you are applying for copyright or trademark, or if you are applying for certain state or federal commercial certification, you may need legal assistance.
Keep your finances in order
Starting a new commercial enterprise requires a lot of work, and it is easy to become lazy when it comes to how to organize and record finances.But this is definitely an aspect of your business, you don’t want to cut corners, as explained by financial planner Logan Murray Pocket plan.
“Ideally, once a limited liability company is created, it is recommended to set it up to keep revenue and expenses only flowing through that entity LLC bank account, To obtain a debit or credit card in the name of a limited liability company,” Murray said. “This is helpful for both legal and tax purposes, because it separates personal and corporate expenses. It’s easier. “
Register at the right time
Creating an LLC comes with a whole new set of responsibilities, and you need to make sure you start it at the right time—not before.
“Choosing a business structure will be one of the first major decisions you make as a business owner, so give yourself an elegant way forward when it suits you, not as soon as possible,” said founder Terra Gross. Attuned Legal, LLC, Specializing in providing services for micro-enterprises. “According to the cost of registering and maintaining a limited liability company wherever you plan to set up, and whether you are personally ready to spend a few hours to keep up or outsource, please take a closer look at the start-up time bookkeeping.
Gross said that even if there are benefits, you should also be aware of reporting and tax requirements. If you are in a regulated industry, you should also double-check whether there are restrictions on adopting LLC as your business structure.
Prepare for annual costs
In addition to the time investment in registering and maintaining your limited liability company, you also need to be prepared for the monetary costs of getting your limited liability company up and running and renewing its annual registration.
“The cost of an LLC depends on the state government,” said Hanlon, a commercial lawyer. “You need to pay a registered agent fee and an annual fee to the chamber of commerce in your state. The registered agent fee is approximately US$50 per year. The price of a state limited liability company ranges from US$100 to US$700.”
Another thing to keep in mind is that if your LLC is registered in one state, but you live in another state, you may end up paying two different state fees.Before you begin the process of forming an LLC, be sure to calculate exactly how much you will spend and Start saving money. In this way, you will not encounter any accidents during the journey.
Regarding the creation of a limited liability company, one of the best suggestions we have heard is to keep it simple. If you are not sure whether to form a limited liability company or a C company, please consider starting with a limited liability company.
“Look at the different types of legal structures: sole proprietorships, limited liability companies, companies, and S companies to see which structure suits your needs,” BillSmart’s Chen said. “Remember, it’s easier to get from a limited liability company to a company than from a company to a limited liability company. Start simple and then delve into it when needed.”
Frequently Asked Questions (FAQ)
What does it mean to own a limited liability company?
An LLC or limited liability company is a business structure that can provide business owners with certain legal protections (such as limited liability) and tax incentives. It is also a relatively simple business entity, requiring only one owner.
What is a limited liability company used for?
A limited liability company is a legal entity used by small business owners who wish to have a more formal business structure than a sole proprietorship or partnership. It also provides certain legal protections and tax incentives.
Is LLC good or bad?
LLC is a good choice for small business owners, depending on their company’s goals and needs. For larger companies, or those looking to raise venture capital funds, it may make more sense to form an ac company.
As always, think about money
Starting any new business venture is a big deal, and forming a limited liability company is no exception.Before you start, please take some time Outline your company goals And decide whether this type of business entity is the best model for your company.
You should also consider Set aside some cash Used for registration and other start-up costs. If you have business partners, be sure to involve them in the conversation and consider drafting an operating agreement to specify various responsibilities. The more planning you make in advance, the better your transition to a limited liability company will be.
The writer Larissa Runkle specializes in finance, real estate and lifestyle topics. She is a regular contributor to The Penny Hoarder.