Reasons to Form a Limited Liability Company

Reasons to File for LLC

If you own a small business or are self-employed, you know that protecting your financial assets is an essential part of long-term success. One option that can help limit your personal financial risk is forming a limited liability company. Here are some areas where creating an LLC could be an excellent business decision.

Small Business

It may seem like the easiest way to run your small business, especially when you are just starting out to use your personal name and assets rather than to form a legal entity. However, there are several benefits to creating an LLC:

The process to establish an LLC is actually fairly uncomplicated and affordable.
Forming an LLC can help you avoid being taxed twice.
An LLC can help keep your taxes simple until your company is large enough to justify switching to a different legal entity.
Maintaining an LLC is usually straightforward.
It's generally easy to make changes when necessary, such as adding a partner.

Perhaps the most well-known reason for forming an LLC is protecting your personal assets. If your company doesn't have legal status as a separate entity, you may be financially liable in certain situations, such as when a lawsuit is filed against the company. Forming an LLC can be a particularly good choice when you are starting your business and don't yet need some of the additional features of a corporation.

Rental Property

While LLC formation may be closely associated with small business ownership, you can actually use this legal option to protect yourself as a real estate investor. If you own investment properties, forming an LLC can help reduce your personal financial risk. You may also find benefits relating to your tax liability.

If you're a real estate investor, you probably know about liability insurance as an option for protecting your investment. In some situations, however, an LLC offers more personal protection than a liability policy. For example, having your investment properties covered under an LLC can shield you from being personally liable in the event of lawsuits from your tenants or other parties.

Asset Protection

An LLC can protect your business and personal assets in the event of legal issues. While you may already have liability insurance for your small business, there is always the chance that the amount of a claim could exceed the coverage on the policy. Additionally, many insurance policies do not provide coverage for wrongdoing or punitive damages.

When you form an LLC, only the assets owned by the LLC are available as compensation in a liability lawsuit. Additionally, the assets in an LLC can receive protection against personal liability of a member of the company. For example, if you are sued personally for an infraction not related to the LLC, the assets in the LLC could not be turned over to the plaintiff.

Skilled Trades

While many articles about forming an LLC discuss investing, independent contracting, and similar business situations, you may still want to consider this option if you work in a skilled trade. Forming an LLC can help you protect your income if you are sued for your work. Additionally, some potential clients may view your work as more legitimate if you operate under an LLC instead of as a sole proprietorship.

Another advantage of an LLC is that it's not limited to a certain type of work or income. For example, if you work for several years as a skilled carpenter under your LLC and then decide to become a general contractor, you can do so under the same LLC.

Independent Contractors

If you are an independent contractor, you may want to consider forming an LLC instead of operating as a sole proprietorship. With an LLC, you can still benefit from having your personal finances protected if your business is sued. Additionally, you can opt to be taxed as a sole proprietorship under your LLC if you prefer. Depending on your specific situation, there could be tax benefits to filing as a sole proprietorship. However, in some cases, being taxed as an LLC is preferable.

As you can see, there are several significant advantages to forming a limited liability company, even if you are just starting out in your work. Creating an LLC can protect your personal finances and may provide tax benefits as well. MyLLC.com makes the process simple. To learn more or get started, contact us today.

Order Limited Liability Company

* If you have difficulties using the order form on your smartphone, try turning your phone sideways for a wider display.

Select Your State:

Disclaimer: This information is made available by MyLLC.com, Inc. (the "Company"), and is intended for educational purposes only, and it is not legal or tax advice. No action should be taken in reliance on any information in or on this site without verification with legal or tax counsel, after review of the facts and current law, that the action to be taken is appropriate under the circumstance. Except as expressly provided to the contrary in writing by the Company, the materials contained on this site are provided on an "as-is" basis without warranties of any kind, either express or implied. Company disclaims all other warranties, express or implied, including, without limitation, implied warranties of merchantability, fitness for a particular purpose, title and non-infringement as to the information, content and materials on and in the site. Company does not represent or warrant that materials on and in the site are accurate, complete, reliable, current or error-free.