There are many different stages of starting your own business, so after you’ve come up with an idea, received some funding, and even gotten a few clients, you may be wondering what’s next. You may want to consider structuring your business into a legal entity like an LLC. Legal entities like sole proprietorships, corporations, and partnerships each offer different benefits and drawbacks, so it’s smart to consider all your options before organizing your business.
As a structure that combines the benefits of corporations and partnerships, you may find that an LLC is right for you. A limited liability company protects its owners from being liable for business debts and lawsuits. In addition, LLCs allow the business utilize pass-through taxation. This means the business’s profits are only taxed once, as the “pass through” to the owner’s personal income tax. While income is taxed at a higher rate, this allows the owner to claim and write-off more things.
People who benefit most from LLCs have some extra time and money to keep up with the paperwork and filing requirements, and want to make their business more official. Keep in mind though, that if you plan to go public, or seek venture capital, having an LLC can make gaining new business funding much more difficult. An LLC won’t be right for everyone, so it’s best to consider all your options. For an overview of the benefits of LLCs and other corporations, and to help you decided if one is right for you, check out this infographic by Fundera.