When you decide to launch your own small business, you have a lot of decisions to make. One of the most important, which sometimes is complicated to understand, is considering the legal ramifications of business ownership. If you've done even a little research into it and plan on owning a small business, you know you'll have to choose whether to be a sole proprietor or to establish an LLC.
What is an LLC?
An LLC is a limited liability company and is a hybrid between a sole proprietorship and a corporation. Many small business owners, even those who run the business completely on their own, set up their businesses as an LLC because of the protection it offers.
With an LLC, your personal assets are protected from your business operation. So, if you establish a business baking custom cakes and a customer gets sick from one of your products, they only can sue the business, not you personally. As a result, in a settlement, your personal assets (home, vehicles, bank accounts, boats or jewelry) are protected.
Also, you can own more than one LLC and have more than one person own it. So, if you and a spouse or a friend plan to run a small business, forming an LLC can be the first step to starting your business. And if your friend becomes saddled with credit card debt or medical debt, with an LLC, creditors can't try to seize your business funds.
What about taxes?
With an LLC, you will need to pay quarterly taxes, just as sole proprietors do. And you'll need a separate business checking account to keep your personal finances separate from the business ones.
You don't need to file a corporate tax return though or pay corporate taxes.
Do I need legal help to form an LLC?
Before you decide to officially launch a small business, consult an experienced business law attorney. You may want to establish a legal partnership agreement if you will be running and owning the business with someone else. It will protect you both if you someday choose to separate or sell the business.
Many entrepreneurs dream of being their own boss, running their business the way they want to. Don't neglect that as part of that, you'll want to protect yourself, your personal assets and your partnership with solid legal agreements.