When someone decides to start a business, one of the first decisions they have to make is what business structure they’re going to use. For many small businesses, the two primary options are the sole proprietorship and the limited liability company (LLC).
A sole proprietorship is owned by one person. The owner’s personal assets are intertwined with the company’s so if the company gets sued, the owner’s assets, including their home and vehicles, are at risk. Owners who don’t want to deal with that risk can opt to start an LLC, which has specific benefits.
Division between personal and business assets
One of the primary benefits of an LLC is that it establishes a line between the owner’s personal assets and those that belong to the business. As long as there’s not a comingling of assets, the personal assets are safe from claims that are made against the business.
Pass-through taxation
Another benefit of an LLC is pass-through taxation. This means that income taxes are handled by the owner’s personal income tax return. The business doesn’t have to file a separate income tax return, which may save the business and owner money.
Starting a business as an LLC requires a little work upfront, but many business owners find having an LLC is worth the effort. Working with someone who’s familiar with starting a business may make the process easier. They can also work with business owners to ensure policies, procedures and other aspects of owning the business are handled properly.