Stephen Kaplan, P.C.

5 advantages of forming an LLC

With Texas continuing to be a hotbed for starting new businesses, you may be thinking of launching your own tech startup or pursuing your dream of running a local coffee shop or photography business. However, you know that it will take more than coming up with a catchy business name, a great logo and lots of marketing efforts to be successful. One of the first decisions you’ll need to make is what type of business to form.

For those who want to minimize risk for themselves and still have lots of flexibility in how to run their business, forming a limited liability corporation (LLC) has a lot of advantages.

Here are five of them:

  1. Reducing personal risk. With an LLC filed with the Texas Secretary of State, even if you run your business on your own, you are reducing your personal risk. With an LLC, your business is legally separate from your personal assets. So, any business debts, lawsuits or financial threats cannot threaten your own financial health. For example, your home can’t be seized to pay off a business debt.
  2. Tax advantages. Forming an LLC comes with many tax advantages too. LLC business owners’ profits become part of their personal tax reporting, so they aren’t taxed twice like corporations are. If an LLC is registered as a single-member LLC, it is taxed like a sole proprietorship would be.
  3. Less paperwork. Running an LLC does not require as much paperwork and meticulous record keeping as running a corporation does.
  4. Management is flexible. With an LLC, its owners and they can determine their individual level of financial management, day-to-day operation involvement and business growth responsibilities. For those forming an LLC with another person, establishing an operations agreement is a good way to avoid potential disputes later on.
  5. Profits distribution is flexible. LLC owners can distribute profits as they see fit. They are not required to split them equally or according to ownership percentages.

As always, working closely with an experienced business attorney before you launch your business will help you to ensure your business is legally viable to operate and can help you draft ownership agreements if necessary. Doing this work before you start your business will save you lots of headaches, and more than likely money, down the road.

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