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What are the benefits of forming a limited liability company?

On Behalf of | Jul 5, 2024 | Business Planning

Starting a new business is a major undertaking for an entrepreneur. One of the most important decisions you’re have to make if you’re embarking on this journey is determining what type of business structure you’re going to use.

There are several options to choose from. A limited liability company (LLC) is one of them. There are some very important benefits that you should consider if you’re thinking about this structure.

Sets a dividing line

One of the most important benefits of an LLC is that it sets a dividing line between your personal assets and the business’ assets. This may not seem like a huge deal at first, but it can make a tremendous difference if your company is ever sued or has to file bankruptcy. Your personal assets can’t be touched to satisfy the lawsuit or as part of the bankruptcy as long as they were kept separate from the LLC’s. This protection isn’t present if you opt to open the company as a sole proprietorship.

Simplifies taxes

Another benefit that many new entrepreneurs appreciate is the simplified taxes that come with an LLC. This business structure uses pass-through taxation by default, unless a corporate tax structure election is made. This means that the company’s profits are included in your personal income tax return. By doing this, the profits aren’t taxed twice–once on a business income tax return and once on your personal income tax return.

Provides credibility

Some clients may see the LLC designation for your company and automatically determine the company is more credible than one without it. They’ll recognize that you’ve taken the necessary legal steps to establish a formal business.

Taking the time to determine whether forming your business as an LLC could benefit you and your company is important. Working with a legal representative who can assist you with getting an LLC – or alternative structure – set up may reduce your stress so that you can focus more on building your brand.