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.
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.
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 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.
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.