According to the most recent data from the Census Bureau’s Business Formation Statistics, approximately 1.4 million applications to form new businesses anticipated to hire employees have been filed until September 2021 – the most through the third quarter of any year on record.
Many people are taking advantage of the better economy to establish a new business. Whatever field your intended startup will operate in, you should carefully analyze the corporate structure you will establish. One of the business structures that seem to be most preferable is forming an LLC.
“Limited liability company” is the abbreviation for “limited liability company.” A limited liability company (LLC) is a type of legal entity that can be used to own and operate a business. LLCs are popular because they offer the same limited liability protection as a corporation while being easier and less expensive to set up and administer.
Why LLC Is Prefered
There are many benefits to forming an LLC over other business structures. Below we will discuss the 5 main aspects that make this business form stand out from the rest:
Taxation
A small business startup may form an LLC depending on how the company is set up and how many employees/investors it will have. This helps the company avoid double taxation and allows it to accommodate several classes of stock if needed. When an entrepreneur adopts a C-Corp business form, the company and the owner are both taxed separately in April, resulting in double taxation. Because it is taxed more like a sole proprietorship, an LLC precludes this. This is especially beneficial if you’re working with a startup accelerator. Later on, you can convert the LLC to a corporation using a rather simple method.
Asset Protection
Many startups form an LLC to protect their personal assets from lawsuits filed against the company. Starting a solitary proprietorship might be a risky venture. A general partnership is riskier. Many founders convert their LLCs to an S-Corp or C-Corp after a time of expansion and growth. This is due to the fact that an LLC’s ability to make acquisitions and mergers is constrained. For businesses that are still in the early stages, LLCs are usually sufficient.
Flexibility When Choosing A Location
Another important consideration is which state you should establish your business in. Delaware is a low-cost state that has been at the forefront of incorporation. The Delaware Court of Chancery’s judges is often pro-business. If you wish to form an LLC closer to home, you’ll see that a growing number of states are following Delaware’s lead. In all circumstances, you should get advice from a professional or use online services like MyCorporation, Legalzoom, or BizFilings to assist you.
The cost of forming an LLC is determined by the state in which it is formed. Regardless of the expense, setting it up in the state where you work is usually a good idea. Many people in New York, for example, believe that setting up a Delaware or Nevada LLC will allow them to avoid paying New York State and City taxes. That is not the case. Regardless of the state, your LLC was founded in, if you operate in New York State at all, you must comply with their tax filing (and payment) rules.
Easy Structure Changing
Another advantage of the LLC structure for a startup is that it requires little ongoing management after it is set up, and, perhaps more critically, it is simple to add new partners or sell interest in the organization to someone else. This is more relaxed than the C-Corp company structure, where board actions must be documented in minutes. When compared to other corporate arrangements, LLCs have fewer constraints on many administrative items.
Easy Registration Process
An LLC is a great business form for a startup because it is quick and easy to set up. You can complete the registration process without the assistance of an attorney. The cost of forming an LLC is about $100. After registering your LLC with the state, you can apply for an Employer Identification Number (EIN) from the IRS, as well as company bank accounts and checks. You are up and running in no time. The LLC’s manager (usually the owner) has the authority to engage in contracts on behalf of the LLC. Patents can also be assigned to an LLC by an inventor.
Final Thought
When choosing a business structure one should first determine what are the business goals, where do you want to conduct business and what is the budget allocated for startup costs. An LLC is seen as a great option with many benefits.
