One of the crucial steps in building your business is selecting its structure. Between sole proprietorship, general partnership, limited liability company and corporation, it is easy to be overwhelmed as to which option you should go for. When choosing a business structure, factors you may consider are the number of owners, liability concerns and tax implications.
What makes LLC popular?
Limited Liability Company (LLC) is a hybrid entity with characteristics similar to the other business structures.
The primary characteristics of an LLC are as follows:
- No double taxation. Unlike a corporation, an LLC may choose not to pay its federal taxes directly and instead have the profits and losses reported on the individual tax returns of its owners. This avoids double taxation of both the company and its members.
- Limited liability. The feature that most business owners seek is that with an LLC, the business becomes its own legal entity and there is a separation of the company’s assets and the members’ assets. This limits the personal liability of the business owners, partners or investors against lawsuits and other financial issues.
But while this structure has attractive features, there are also disadvantages. For one, an LLC is subject to dissolution upon the death or bankruptcy of a member, unlike a corporation.
Check your priorities
Deciding on a business structure can be difficult if the business owner is unfamiliar with the types of entities. If you are one, it is good to keep your options open but ultimately, the best choice depends on your priorities and business needs.