Starting a business is a major undertaking, and it must be handled properly to minimize potential issues in the future. One of the decisions that has to be made early in this process is what type of business structure to use. There are several to choose from, but the two most common are the sole proprietorship and the limited liability company (LLC).
Some individuals who are starting a business by themselves opt to use the sole proprietorship structure. The issue with this option is that it doesn’t set a clear dividing line between personal and business assets. Instead, everything is all grouped together, which means that the owner’s personal assets may be seized if claims are made against the business.
Limited liability company structure creates division
Creating an LLC establishes a dividing line between the owner’s personal assets and the business. As long as the LLC is handled appropriately, the owner’s personal assets aren’t able to be seized if the company is sued or creditors come after it.
One area where there isn’t automatically a division between personal and business is income taxes. The taxes of an LLC pass through to the owner’s personal income taxes, which avoids the issue of double taxation. This can help to save the company and owner money.
It’s critical that anyone who’s starting a business takes the steps necessary to protect their interests. One way to do this is to ensure they use the best business structure to meet their needs. Working with someone who’s familiar with business formation and related matters can be beneficial for individuals in this position.