Many people are asking themselves this question. Often, setting up a limited liability company is an unnecessary expense for small businesses. However, there are some instances where it may be worthwhile to set one up. If you’re unsure whether or not it’s worth your time and money to set up a limited liability company, check out these three reasons why you should do so!
Limited Liability Company will protect you from personal bankruptcy if your business goes under
You never know what tomorrow holds. You could lose your job, be injured, or have some other sorts of unforeseen problem arise that will make it hard to pay the bills. However, once you set up a limited company, you will have the ability to separate your accounts from those of your business. The registration process is relatively easy, and if you find it overwhelming, there is the option of letting an expert handle the workload for you.
If anything were to happen, and it looked as if your company was in financial trouble, then this would be an excellent way for you to protect any assets that are solely yours (such as homeownership or car loan). If the worst-case scenario does materialize, at least your house won’t go into foreclosure, or the bank repossesses your vehicle because bankruptcy laws do not apply to personal possessions owned by an LLC.
You must understand how limited liability works when setting up an LLC. What happens here is that all debts become owed by only one entity within your company–the name on which everything is registered: yourself! This means no one else is responsible for any money your company may owe, which in turn protects their finances.
You can avoid double taxation by filing your taxes as an LLC
Taxation is one of the primary reasons people choose to set up a limited liability company. By filing your taxes as an LLC, you can avoid double taxation on the profits your business makes. This is because the IRS will tax the company itself, rather than taxing you and the company separately.
This is a significant advantage if your business is making a profit. It can save you a lot of money in taxes, which can help you grow your business more effectively. However, you should note that this benefit has some limitations. For instance, if you live in California or New York City, you may not be able to take full advantage of it due to state-specific rules and regulations.
Less Administrative Hassles and Paperwork
Unless you’re starting a very small company with just one person working in it, you will undoubtedly have to deal with the day-to-day administration issues and paperwork.
In some cases, this can be an extremely time-consuming process that may require your full attention if something goes wrong. You might need to go through all kinds of forms. As such, there is no guarantee that once you are done taking care of them properly – errors-free – you won’t end up getting into trouble because not everything was filled out correctly.
However, with setting up an LLC, most of these administrative hassles do not exist anymore as legal experts primarily handle them. You will need to inform the company secretary about your company’s formation and provide some key documents, but that is pretty much it. You can then get on with what you do best – running your business!
Setting up a Limited Liability Company is a viable option if you want to start your own business. As explained above, it offers many benefits, including protecting personal assets while letting you enjoy all profits generated by the company. However, there are also some drawbacks.
Therefore, the choice between an LLC or corporation depends on your situation, so it pays off to talk with experienced professionals before making any decision in this regard because they can help you estimate what would work best for you.
