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Should You Form An LLC? A Quick Guide to Which Business Structure is Right for You!
Date of Post
Jun 28, 2022
Read Time
5
Date of Post
Maricela Olivo

You might be wondering why you should ever form an LLC. The structure can seem restrictive, especially if you plan to grow your business beyond the initial investment. However, operating as an independent contractor or sole proprietorship limits your business’s potential and opportunities to grow it into a more robust enterprise. 

Forming an LLC can give your business the protection it needs in order to grow without suffocating under unnecessary restrictions or demands. In this article, we will cover topics including what is an LLC, how to form an LLC, and which type of business structure is right for your company.

What is an LLC?

An LLC, or limited liability company, is a business entity that is formed under state law as a “partnership between owners,” with the owners (called “members”) having limited personal liability for the business’s debts. This limited liability protects individual owners’ personal assets from being at risk in the event of a company’s financial insolvency. LLCs are often formed by individuals looking to set up a separate legal entity to hold assets or hold interests in other business ventures. LLCs can be formed in one of two ways: as a standard LLC, or as a non-operating LLC.

How to Form an LLC

We can help with all aspects of forming an LLC and offer a quick and easy process for starting a business. Although forming a limited liability company is a relatively easy process, there can be some tricky areas where you might need some help – this is where Launch A Biz can help. You can form an LLC in your state by filing the appropriate form with the applicable government office. Typically, this process involves filing an “articles of organization” form with your state’s legal department, followed by a payment towards the filing. Once the legal paperwork has been filed, the office will issue a “certificate of formation” that constitutes the LLC’s official record. Once this certificate is issued, the LLC’s formation is complete and it can begin operating under the law of its home state.

The Benefits of forming an LLC

As an independent professional or startup business owner, incorporating your LLC can provide you with a number of advantages. Firstly, forming an LLC allows you to protect your personal assets. If your business fails and files for bankruptcy, you won’t be held personally liable for any of the debts incurred by the company. 

Secondly, incorporating your LLC allows you to protect your business’s finances by keeping its finances under the LLC’s sole control. Because you are the LLC’s only member, the LLC can’t be sued by creditors, be forced to pay back debts, and it can’t be dissolved by the courts. Therefore, if your LLC is profitable, it can expand and contract as your business needs it to expand and contract. After a few years of growth, you can dissolve the LLC, sell your assets and return to purely personal status.

The Disadvantages of forming an LLC

Because LLCs offer owners limited liability protection, they are usually best suited for professional firms and other businesses that have a large potential for liability. If for example you operate or own a construction company, what would you do if you fell off a roof and broke your leg? While incorporating your LLC can provide you with many protections, you’ll also have to give up the flexibility that comes with operating as a sole proprietor. For example, you may be restricted from expanding your business or taking on new clients. In addition, operating as an LLC may also make it more difficult to obtain bank financing or other forms of financial backing.

Which type of business entity is right for you?

The benefits and disadvantages of each business entity type will vary depending on your specific situation. Therefore, it is important to thoroughly weigh your options and choose the business entity that best suits your needs. Before you make your decision, it’s important to understand the basics of each type of business entity. Simple Limited Partnerships allow owners to contribute funds and share profits but have no obligations to each other. This makes simple partnerships a great choice for ventures that are partially financed by multiple investors, such as startups and small businesses. Simple partnerships have few restrictions and can be formed by filing a paper form with your state’s secretary of state. There are no federal or customary forms for forming a simple partnership. Partnerships formed under state law must file a “articles of organization” form with the state’s secretary of state.

Limited Partnership

Unlike simple partnerships, which are formed by filing a paper form with your state’s secretary of state, a limited partnership is formed by filing a federal form with the Securities and Exchange Commission. While there are many benefits to incorporating as a limited partnership, including federal tax benefits and the ability to accept outside investments, forming a limited partnership is the only way to form a limited liability company. With a limited partnership, investors can be general partners who contribute funds in exchange for a share of profits, or limited partners who contribute funds in exchange for a share of no profits or limited profits.

Corporation

Corporations are formed by filing a federal form with the Securities and Exchange Commission. Corporations have many benefits, including the ability to issue stocks and debt to raise money and the ability to sell stock to the public. In addition, corporations are the only business entity type that can elect to be taxed as a corporation or a limited liability company under certain circumstances. Most businesses choose to incorporate and are often formed as corporations. In fact, according to the latest statistics from the U.S. Census Bureau, there were more incorporated businesses in the United States in 2016 than there were unincorporated businesses.

Conclusion

Choosing to incorporate your business can be an excellent decision. Launch a Biz can help with all aspects of helping you make the right decision for your business, taking into account your location, your background, assets, personal circumstances and everything in between. Please feel free to get in touch with us to see how we can help – our professional and experienced team will help with all aspects of launching your new business in the US.