Nothing beats the feeling of finally becoming your own boss or starting a new business. However, starting a business often comes with various challenges. One of the challenges many people face when getting started involves choosing the right structure for the business.
Sole proprietorships and partnerships are a common option, but most people prefer corps and LLCs because of the stability and additional benefits they provide. While most small businesses are set up as an S-Corp, there are some reasons to choose an LLC instead. The most important factor is that your business can save money, time, and effort. Without further ado, let’s look at a few good reasons you may want to choose an LLC over a corporation.
One of the most important things people think about when starting a business is how much it will cost before the business is licensed and registered so it’s up and running. The LLC startup costs are also fairly pocket-friendly compared to creating a corporation. In a recent guide on how much does it cost to set up an LLC in the USA, Benjamin Aronson highlights filing fees as the major costs incurred by LLC business owners at startup. These fees are paid to the state and may range anywhere between $40 and $500. Of course, the costs can be a bit higher if an attorney is involved. Instead of hiring a lawyer, most people find it cheaper to DIY or hire an LLC formation agent.
2. Easy and Formation
Launching an LLC is pretty much straightforward, with minimal paperwork and regulatory procedures required. You do not need directors, officers, and manager roles. You also do not need to create company minutes, have annual meetings, or form resolutions like in the case of a corporation. The registration and regulatory formalities are reduced in an LLC compared to a corporation, which is another sweet spot for business owners who can’t wait to get started. Moreover, you can always convert the structure into a corp somewhere down the line as your business needs evolve.
3. Limited Liability
One of the main advantages of an LLC is that it offers a clear line of separation between the business and the proprietor. In other words, the LLC and the owner are two separate entities, meaning that the liabilities, debts, or obligations from the business cannot be passed over to the proprietor. This means that in case your business runs into some kind of financial or legal trouble, your personal assets cannot be seized to cover the liabilities. From this standpoint, an LLC is clearly better than a sole proprietorship or partnership. Because it offers the same liability protection that a corp offers, its ease of formation is all the more reason to choose an LLC.
4. Flexible Administration and Management
Unlike corporations, LLCs don’t have a long chain of command or formal structure. In a corporation, for instance, major decisions inclusively rest in the hands of managers, board members, officers, and even shareholders. In case there’s a difference of opinion, sometimes delays could be expected. With an LLC, however, the management structure is simpler and more flexible. It can be curtailed or adjusted over time to suit the needs of the business. LLCs can make operational and strategic decisions faster and with more flexibility compared to corporations. There is minimal to no bureaucracy, and all the critical decisions can be the responsibility of one or two individuals.
5. Tax Advantages
With an LLC, you also get to enjoy a few advantages when it comes to paying taxes. For instance, you have the freedom to choose how to be taxed depending. You can opt to be taxed as an S-corp, C-corp, sole proprietor, or partnership. The last two options are more common, but LLC owners can switch to whatever option they find most convenient. Better yet, it is easier to avoid the double-taxation problem, which is more common among C-corporations. Many C-corps often find themselves paying taxes on dividends even after they’ve already been taxed on company profits.
Finally, an LLC looks more official compared to alternative business structures like sole proprietor and partnerships. The LLC initials usually go after the name of your business on documents, marketing content, contracts, and other business material. This makes your brand look more professional and credible. Don’t forget that the steps for starting an LLC are pretty much easy compared to a corporation, yet your business gets this legitimacy advantage. This credibility can allow easier access to some resources that only a registered corporation would qualify for.
To sum it up, an LLC gives you a range of advantages that would make you choose this structure instead of a corporation. It is more flexible to run, cost-effective, simpler to set up, and provides several tax advantages. What’s more, you can always change it to a corporation later in time.