Should Your New Business Become an LLC? ? Legal information

With the continuing number of people losing their jobs, many have elected to become entrepreneurs to try and break out on their own after previously holding regular jobs. If you?ve started a small business, or plan to do so, you might want to consider the advantages of becoming an LLC.

LLC, or Limited Liability Company, is a type of business organization which is becoming very popular because of the benefits that it provides the owners.

During start-up, defining your organization type as an LLC is easier than setting it up as a sole proprietor. It is even possible to convert your organization into an LLC even if it?s already been previously set up and defined as another type of business organization.

If you have established your business as a sole proprietorship, it may have been done simply by filing a DBA (doing business as) form in your locality. You may not have been required to register your business with the state. An LLC is one of the forms you can choose when registering your business.

There are advantages and disadvantages when choosing to start your company as an LLC, but the most important advantage is that it provides protection from liabilities to the owners. In case an LLC venture fails for example, the owners would not be held accountable for loans made by the company. If in case the company would be sued for some reason, the owners may not be held legally responsible.

A key benefit is pass-through taxation for the owners which means that they are still able to file income or loss on their individual income tax returns. Other benefits would be increased credibility with shareholders, less stringent requirements compared to corporations, and a more flexible management style. There are no business taxes, no board meetings and no board of directors, which corporations are required to have.

The disadvantages of starting an LLC lie in the legalities and fees. To form an LLC, Articles of Organization have to be filed and filing fees paid in the state in which you register your business. Some states require an annual report or franchise fee as well. These are often inexpensive for small businesses, however sole proprietorships and general partnerships are free of these requirements. Ownership of an LLC is often harder to transfer because there is no stock to be sold and all owners must agree to any changes.

While you may set up an LLC with only one owner in some states, others will require at least two partners. One more disadvantage is that owners are obliged to file self-employment taxes, as they are wont to do anyway if it is indeed their only source of income.

Because of the legal forms required, many people who form an LLC hire attorneys to do the paperwork. Forms are also downloadable from the internet for those who are secure enough to comply with the process by themselves. If such is the case, just be sure to use the forms which are recognized by your state and research any possible special requirements if any.

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