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Little Known Facts About LLC – And Why They Matter

An LLC, commonly known as a limited liability company, is a type of business structure because of its flexibility and simplicity. If you are a business owner and entrepreneur, forming an LLC is the best way to establish your credibility and protect your assets. Millions of new businesses are built each year in the United States. They are legally structured as one option among others: sole proprietorships, partnerships, corporations, or limited liability companies. The structure chosen for a business determines who owns it, how taxes are paid, and who is liable for lawsuits or debts.

One of the most beneficial business structures is the limited liability company for small businesses and entrepreneurs. You can get the best llc services to facilitate this process.

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Corporate Veil

LLCs operate as a separate legal entity from their owner, which is known as a corporate veil. This protects the owner’s assets in the event of lawsuits or unpaid business debts.

Transitional taxation

When a company earns profits, the profits are taxed, distributed to the owners, and then taxed again as personal income. The earnings of an LLC are not taxed, so the owners only pay income tax once.

Accounting Software

Accounting and business compliance can be complicated. LLCs simplify formation and record-keeping compared to other business structures, making them easy to manage, even for single-owner businesses.

LLC owners do not have to be U.S. citizens or green card holders. If you are looking for flexibility and simplicity, LLCs are an excellent choice for starting a new business.

How an LLC protects your personal assets

Suppose you run your business as a sole proprietorship or partnership and, for example, someone damages your property, or one of your products injures someone. In this case, you could be sued as an individual and lose your personal property: your house, your car, etc. An LLC shields the company owner by working as a separate legal entity liable for your debts and claims.

The distinction between owners and business structure is known as the corporate veil. It is not enough to organize an LLC, and you will need to maintain the corporate veil by:

  • Approving documents as a representative of the business and not as a person.
  • Managing personal business finances separately. Following an operating agreement.
  • Dodging fraudulent actions.
  • Keeping up to date with yearly filings.

Final Thoughts

You can never entirely anticipate obstacles and difficulties, but to prepare for the most harmful and defend yourself and your business, establishing an LLC is a good step.

 

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Different ways to raise startup capital

A business cannot expect to grow if it does not have enough capital to fund its production activities and development projects. In the cutthroat world of business, most businesses struggle to get enough capital to fund their operational activities. In this article, I will highlight different ways to raise business capital that can help a business alleviate its financial difficulties.

Ways to raise business capital

Debt

345tyhrgefrOne of the easiest (read trickiest) ways of getting capital for your business is through borrowing. Banks are in the business of lending money at a favorable interest rate and are therefore ready to advance credit to any able and willing business. However, while borrowing is easy, it may be a business’s ultimate undoing. The business must pay the loan with interest in a specified period. Given the uncertainties in the business environment, the risk of default is always high. If you default, you can easily be declared bankrupt and forced to close shop. On a different note, not every business has access to credit facilities. Only the businesses with a high credit rating are given loans by banks and other financial institutions. Bottom line, while debt is an easy way of getting capital for your business, it is a burden to the business. You need to think about it carefully before you decide to sign any loan agreement.

Equity

Equity is cheaper than debt, but it is more difficult to get. When using equity as a source of capital, you are inviting other people to be co-owners of the business. In other words, you are selling part of your stake in the business to them. This means that you will share your profits and losses with them. It is cheaper than debt because you have no obligations to share profits with shareholders. A business does not have to declare dividends to shareholders, but whenever it makes a loss, shareholders lose the value of their stake in the business.

Equity has its downside as well. For example, floating a company on a securities exchange is a very elaborate process. There are minimum requirements to be met. There are also bureaucratic legal procedures. The process may also not be economically feasible, especially if a company is overoptimistic. We have seen companies getting delisted from organized securities exchanges. We have also seen others experience an inelastic demand for their shares. Overall, equity is more affordable and manageable than debt as a source of capital, but it is harder to get.

Business credit

Trade credit can also be viewed as a source of capital for business. Here, a business gets goods from its suppliers on credit and repays later, typically in 90 days. The business expects to sell these goods at a profit within this period so that it can meet its obligations when they fall due. Problems arise when this does not happen.

Most businesses combine various forms of capital to fund their activities. For instance, most companies listed on organized securities exchanges have an appropriate mix of debt/equity in their capital structures. In general, equity should be more than debt. They also use trade credit as a source of capital. Sometimes, a business can also sell its property to raise capital for its activities.