Choosing a business structure can be one of the most important decisions you make when starting your own business. This decision can have long-term effects on the success of your business because it can affect how your business is taxed, what kind of liability you could face, how the business is managed and more.
A limited liability company (LLC) is one business structure you could choose. It can be a popular choice because it combines some of the benefits of two other popular structures – a partnership and a corporation.
How is an LLC the best of both worlds?
The owners of an LLC are called “members”. The business may be run by its members or by one or more managers who are elected by the members. However, the management structure of the business must be documented in the certificate of formation.
Like a partnership, the profits and losses of an LLC can pass through to the members personal income without being taxed like a corporation.
Like a corporation, the members of an LLC are only exposed to a limited amount of liability. This means that in most instances a member’s personal assets, like their car or house, cannot be taken to satisfy business debts or obligations. The LLC business structure protects their personal property in case the business faces bankruptcy or lawsuits.
Is an LLC the right structure for your business?
The limited liability of members is a key part of the LLC structure. However, if you are considering choosing this structure for your business, it can be helpful to understand that there may be certain circumstances when you still could face personal liability as a member. For example, a personal guarantee of a business obligation could make the member personally liable for the details of the guarantee he or she made.
LLCs can be the right choice in a variety of circumstances. It could be the right structure for your business if your business concept has a medium or high risk. It could also be the right choice for you if you have a significant amount of personal assets that need protecting or if you are interested in choosing a structure that has a lower tax rate than a corporation has.
However, an LLC is not the right choice for every business. When considering your options, it may be helpful to closely examine each business structure and consider which option offers the benefits and protections that best align with your business goals.