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Why would you choose an LLC?

On Behalf of | Aug 15, 2022 | Business Formations

If you are starting a business on your own, you have the option to start a sole proprietorship. This is favored by some individuals because it is very simple. People will often use a sole proprietorship when they’re just starting the business, and then it may transform as it grows.

But you also have the option to start a limited liability company, or an LLC. Let’s take a look at some of the advantages of an LLC and why you would choose this over simply running a sole proprietorship.

Removing personal liability

The main advantage of an LLC is that it gets rid of the personal liability that you would otherwise carry for financial debts held by the business. For instance, if you run a sole proprietorship and you take out a loan that you can’t pay back, you have to pay the creditors out of your personal funds. If you run an LLC and the company takes out the loan, even if the company goes bankrupt and has to close, you don’t have to pay out of your personal accounts.

This often makes it easier for business owners to take the risks that they need to take to find success. If they were personally liable, it could hold them back.

Taxes are easier

Another advantage of an LLC over a more complicated business structure is that it is a pass-through entity. The profits from the company aren’t going to be taxed by the IRS at that level. Instead, anyone in the company – this may just be you if you’re a sole owner – has to declare the profits that they have received and pay income tax themselves. This can be easier than trying to figure out how to pay taxes for the company and then paying yourself a salary out of the earnings. You simply receive the profits that the company makes and you pay taxes on them personally.

Setting up your business

These are just a few of the benefits that you may see with different types of business structures. What’s right for one business owner may not necessarily be right for another. Make sure you understand all the legal options you have and what steps you need to take.