One of the biggest questions new business owners need to ask when taking their entrepreneur dream to the next level is: “Do I really need an LLC?”
It’s certainly a valid thing to question if you’ve put in all the work to finally get your business fledgling off the ground and flying, and want to make sure you’re forming the right kind of entity that’ll set you up for success well into the future.
Let’s walk through this question together and find out if forming an LLC (Limited Liability Company) is really the right choice for you.
Do I really need an LLC?
In short, no. An LLC is not legally required for a business, but most business owners find the benefits of having an LLC far outweigh any money and time spent setting one up. To see if an LLC might be right for your business, you will need to decide if the following benefits of an LLC sound good to you.
Is an LLC the right choice for me?
An LLC could be the right choice if you would benefit from these advantages:
- An LLC gives you the same liability protection as a corporation, but with much more flexibility and a formal business structure. It’s simpler to establish, easier to maintain and most popular for small business owners.
- An LLC separates your personal assets from your business assets, meaning your personal assets will be legally protected if someone brings a lawsuit against your business. This means less risk for you and peace of mind that you’re not putting everything on the line. You and your business can have your own separate tax identification numbers and bank accounts.
- LLCs are also especially helpful to avoid conflict or misunderstandings if you have multiple business partners. Your personal assets won’t be affected if your business is sued for something your co-owner or partner does.
- The framework of an LLC allows you to more easily figure out details like what happens when people join or leave the business and how to pay out profits to partners and employees.
- Banks, potential investors and fellow business owners will be more likely to give you funding or support your business as LLCs symbolize legitimacy.
- LLCs give you great tax benefits such as deductions and even total write-offs for expenses such as on advertising, office space (including home office space) and even your business vehicle.
- Easily set aside money for your future and family by setting up retirement funds for the LLC and life insurance policies.
- You can avoid the nightmare of double taxation by the IRS completely (which is what you’d face if you owned a corporation).
- All of this comes without disturbing the management and income flow of your business — another big plus for any new business owner already juggling a million other things.
But what about the reasons to avoid forming an LLC? Do I need to form an LLC?
First off, if you’re a solopreneur who is happy with your sole proprietorship and the above benefits didn’t float your boat, then that’s a sign you might not need an LLC. However, here’s some more things to consider when asking if an LLC is right for you:
- You might want to form a corporation instead. The differences between a corporation and an LLC are too complex to cover here entirely but the two most common types of corporations are S corporations and C corporations. An S corporation is a pass-through entity like an LLC. It permits owners to be taxed just once. A C corporation, which is taxed at the corporate level and taxed once each owner receives their dividends, is the most common kind of corporation.
- If you want to raise investment funds for your company through issuing shares of stock, that’s not permitted for LLCs. You should think about whether that’s something you either want to do now or in the future.
- Each state is very particular about the formation and management of their LLCs and corporations. It is important to review the specific rules pertaining to your state and your company.
- If you’re a U.S. based company with only U.S. investors, then an S Corporation may be the right fit for you. S Corporations allow for the tax advantage that LLCs permit, however, limits those shareholders to U.S. citizens or U.S. resident aliens.
How to start an LLC?
Once you’ve considered whether an LLC is right for you, the next step is actually forming one. There are a few options: Hire an expensive lawyer, risk the DIY route that’s prone to errors, or use an LLC formation service like the LLC Bundle at Plug and Law.
LLC formation services are popular routes to take because they make forming an LLC simple, secure and easy. You’ll cut out all the confusing legal jargon and paperwork and save a lot of time. You can find more information about how to start an LLC here.