Most entrepreneurs do their business online. But the biggest question everyone has is: Do I need an LLC?
There’s so much information on the internet that it can be very confusing sometimes. Some say an LLC is needed. Others claim you don’t. So, what is the truth? Instead of going through tons of websites and blogs, we’re going to help you find the answer. We know how frustrating it can be. We’ve been through it too, and we want you to know that it’s not as complicated as it seems.
Who should form an LLC?
There are many contradicting decisions about forming an LLC because not all businesses are similar. Some may benefit from it, while others won’t.
Here’s a list of who should form an LLC:
- Businesses with multiple partners or owners
- Entrepreneurs or individuals who want to avoid risking personal assets
Why should you form an LLC?
Protect your assets
If you’re still registered as a sole proprietorship, when something happens with your business, it’s going to be entangled with your assets. That means your house, car, investment, and bank accounts are all at risk. When something happens to your business, those assets can be used as collateral. Moreover, the same goes when you’re avoiding legal issues. Whether your business goes up or down, facing legal risks in your business will also mean your assets can get swept away in an instant.
When you form an LLC, your business becomes a separate entity. That means your accounts won’t be affected by whatever happens in your establishment. You won’t be personally liable when your business has debt or has been sued.
But that doesn’t mean you won’t be held responsible if you were held accountable. For example, your company can still face legal charges if your employees are negligent or unprofessional. But, even if that happens, they won’t go after your personal assets, just the assets of your LLC.
Although there isn’t a safeguard that can protect you from all threats, it at least shields your assets. You can rest well that should something happen, the debt collectors won’t come after your home or bank accounts. However, you have to keep in mind that this is only possible after you’ve formed an LLC. It may be a different case should you encounter problems before you go through the process.
If there’s more than one person in a business, it can get tricky to manage the establishment. Details such as taxes, how to pay partners the profits and what happens when people leave or join the business can be easier to set up and manage.
Before you go and file for an LLC, you should know that there are some risks regarding taxes. If you don’t fix it right away, there’s a chance that an LLC can be taxed as a corporation. So, when an LLC gains profit, there’s a slight chance to be taxed twice. An LLC can be taxed at the individual’s level and the corporate level. How to avoid this problem?
Discuss with your accountant first if filing for an LLC is a good move for your taxes and finances. Your accountant should be able to gauge whether your business will be better off filing or not filing for an LLC.
It’s not difficult to form an LLC
Most people think that registering for an LLC is a long and arduous process. They don’t know that there are now services that can help you get it done without too much fuss. Some of those companies compile all the documents you need to pass.
Once you have everything, they’ll communicate with you from time to time for updates and revisions. If you’re short on time, you can ask your accountant too if they can do it for you for an extra cost.
But, if you want to settle things yourself, check your state’s official website for details and instructions. You can check this state-by-state guide for annual LLC report filings.
If you’ve been managing your business using your bank accounts, you may need some time to get used to having a separate account for everything. We know taxes can be a headache, so if you need a guide, you can check out this article here.
It’s not expensive to file.
Another misconception is that filing for an LLC is going to take up too much of your budget. While there is a cost, it’s not as expensive as you may think it is. It could cost you up to $150 for the filing fee. Your annual fees will depend on what state you’re in. You can take the help of professional services such as Zenbusiness or Legalzoom to handle your compliance requirement at a nominal cost.
Filing for an LLC is a great idea, especially if you have partners and other co-owners in your business. But before you push through with this idea, it’s best to talk with your partners, co-owners, lawyers, and accountants first.
Operating as an LLC may seem complicated compared to other structures, but once you get the hang of it, you’ll find it is one of the easiest and safest routes to go.
