An LLC is a business type that allows for multiple owners, referred to as members. Each member is designated in some way to help maintain the business. Business owners with only one owner can also have an LLC since there is no cap on the number of owners or guidelines as to how many there has to be.
Many businesses have chosen an LLC over a corporation (also known as a Limited liability company) due to its ease and flexible terms it offers. The choice to form an LLC, or Limited Liability Company, gives the business owner many benefits. The biggest attraction for LLCs is the way business owners are taxed and how their assets stay in tack.
Why Get an LLC?
If you are just getting your business up and running or if you are running a business on your own, an LLC is a smart choice. The entire reasoning behind an LLC is for adding protection to the owner of the business and their belongings. It provides a barrier to legal issues that could affect the owner’s personal items and property if a legal issue arises.
LLCs are popular with property owners, but any business can have an LLC. Entrepreneurs can select how they want their businesses to be managed because there is nothing limiting how many owners a business can have under an LLC.
Pros and Cons for Entrepreneurs
The number one reason entrepreneurs should get an LLC is to prepare for unexpected things that can, and do, happen in business. For example, if one of your clients is suing you your finances will be affected, without anything in place to protect them. LLCs, ensure this doesn’t happen. It will protect and separate your business affairs from your personal ones.
It requires less paperwork than filing as a corporation, so it makes it easier to keep track of everything you need for taxes. You have more options for filing taxes as an LLC, as well. The profits of the business could be taxed based on the business owner’s information. You can choose to file as a corporation would, too.
Having an LLC lets your clients know how serious you are and that you are a true, functioning business. Anyone can say they own a business, but clients see an LLC as a mark of credibility. Plus, you can register your business’s name to make it official.
Though an LLC offers many pros, there are some cons to consider. One is cost. It is common for a business owner to spend more money each year to maintain an LLC than it would if you were filing as a sole proprietor. Every state has their own fees, both yearly and quarterly for LLCs, which is why it makes it an added expense.
Another con is that it is difficult to transfer ownership back and forth within an LLC. Each member or owner of the LLC has to come to an understanding that is agreed upon by everyone before changes are brought forth. So, if one of the LLC members wants to add someone else, all the other members have to give their approval before that can happen.
How Do You Register an LLC?
The first step might seem like an obvious one, registering your LLC in your state. However, not all owners use their state for their LLC registration. There are various fees throughout each state which make it an advantage for choosing a state with cheaper fees in which to register. However, it can be tricky if you do it this way, so it is usually best to just register where the business will function the majority of the time.
Next, the business owners need to select a name for their LLC. Individually-owned businesses can register their own name as the LLC. Whatever name you think of using, it’s advised to do some research to ensure that name is not being used already. Many states allow you to hold a name, although fees may be paid to do so.
After this, find a registered agent to handle your LLC documents. Business owners can be their own registered agents, but that means they are in charge of keeping up with all the paperwork. This includes the LLC operating agreement. The best option is to get everything written down, though most states consider this agreement completed if spoken.
The last step is to officially file the LLC with the state it is registered in and get an employee identification number. This is what you will use in your taxes and with bank accounts related to the business. You’ll also need to obtain a sales tax identification number for that state.
Entrepreneurs face an arduous time deciding if an LLC is right for their business. Consider what type of business it is and how much liability is needed. Focus on whether the cost outweighs the benefits it offers or if it will be another stressor for the business.