When setting up a business for the first time, one of your crucial decision will be what form to register under. It is easy to dismiss limited liability companies (LLC) as overkill for your needs. Yet, there is a reason that so many experienced entrepreneurs use LLCs. They provide benefits that simpler business structures do not while avoiding the complications corporations face.
An LLC protects you if your startup fails
Let’s say you are the parent of a young child. You believe starting your own business will benefit you and your family. It will let you dictate your hours, making it easier to split childcare with your spouse. You will earn more, enabling you to build a better life, and by doing something you love you will be less stressed and become a better parent and spouse.
Your spouse, however, is concerned about what happens if the business does not go to plan. They fear that you could lose everything. If you set up as a sole proprietor, you could. Becoming an LLC sets a clear boundary between the company and you. If the business fails your house and personal assets will not be at risk.
An LLC can reduce tax
You can set up your LLC so that it does not pay tax. Instead, you do on the profits the business makes. Known as pass-through taxation, it allows you to take advantage of lower tax rates and pre-tax allowances, thus reducing the total tax you pay.
No one business structure suits everyone. If you are unsure what is best for you, seek advice from someone who understands the different options available. The decisions you make when forming a business will play a significant role in the chances you succeed.