For new or experienced business owners the thought of registering a LLC for their business may come up at some point. Creating an LLC can have numerous benefits for a business owner and allows business owners to protect their personal assets and keep them separate from their business related liabilities. Even small businesses and non-business owners with substantial assets should consider forming one due to the large amount of protections they offer.
Historically, the LLC was used as a corporate structure by businesses to protect the owners’ assets when a company was sued and for the tax benefits that they provide. They are now being used by individuals with investments and as a structure to transfer assets to beneficiaries. They should definitely be used by those who sell items online or offline, as with any sales activity there is a risk of liability, even for businesses that have very low volume.
If an entrepreneur is sued while there is no LLC in place, he or she will be personally liable for any amount in judgment. Having one in place when sued will only allow for the assets of the business to be used to pay off any judgments or debts. An LLC may also invest a portion of its profits into expansion of the company without any penalty. With the proper structure, it can also invest its profits into other business ventures. Although forming an LLC can cost some money, it is worth the money in the long term for the protections that it can provide.
LLCs are also much easier to set up than other types of corporate or business structures. They do not require annual meetings like a C-corp, and C-corps have many other regulations and accounting rules that must be followed. One of the downsides to an LLC is that they do not allow for investors, making it more difficult for outside investors to enter the company. The number of investors allowed varies from state to state, with some states only allowing two investors, and other states allowing more. However it can be converted into a C-corp fairly easily down the road if needed.
Not everyone can set up an LLC, for instance healthcare and certain service professionals in California are prohibited from setting up an LLC for their services. Therefore, state law should be reviewed prior to setting one up. However, for the majority of business owners, having the protections of an LLC makes a lot of sense, especially considering the fact that lawsuits can be brought against almost any business.