5 Reasons You Should File Your LLC Right Now!

Protection for Your Personal Assets

It takes a lot of discipline and sacrifice to build wealth for the future, and all of that could be at risk if your company finds itself in the crosshairs of a lawsuit or lien. As a sole proprietor or general partner in a business, your personal assets can be targeted due to judgments or unpaid debts, and that could leave you without a home. No stones are left unturned when assets get liquidated to settle an outstanding debt, and even your savings for retirement or your children’s college tuition can be fair game for creditors.

Tax Benefits

You should always consider the tax implications when forming a legal entity for your business, and the IRS treats each one differently. One of the largest benefits of an LLC is its status as a “pass through” entity when it comes to taxes, which means the business itself doesn’t have a tax liability. The amount owed to the federal government literally passes through the company and is instead reflected on the personal income tax returns of the shareholders, who are actually known as members. If you incorporate as a C corporation, the company’s profits get taxed as income and then the same happens to any dividends you receive as a shareholder, which amounts to double taxation.

Less Paperwork

Small businesses often operate on shoestring budgets, and excessive paperwork could put a strain on limited finances. If you choose to form a C corporation for your company, the legal requirements to maintain your status can be considerable. In California, for example, C corporations must create bylaws that govern everything from meeting schedules to the number of officers. You’ll also need to have formal elections, provide a formal annual report to shareholders and pay substantial fees. If your company isn’t designed for that level of formality, an LLC is probably the right choice.

Flexibility

Your business likely has little in common with a major corporation, so why should you be forced to operate in the same manner as a global giant? A C corporation has strict guidelines on corporate governance, and the company’s bylaws dictate a number of factors:

• Number of officers and the manner in which they’re elected
• Profit distribution
• Schedule for annual meetings
• Number of shareholders

What makes an LLC different is the ability to make strategic decisions without the framework of bylaws limiting your choices. As the owner of the company, you have the ability to change the way you’re running the business without making amendments to the company’s constitution. You can also opt to pay members differently based on the amount of work performed or the amount of money contributed to a special project.

Make Your Own Decisions

A small business sometimes needs to make quick decisions to take advantage of temporary situations, and that’s not always possible if the company is organized as a formal corporation. When it’s time to make a major decision, a C corporation generally requires approval from a board of directors before proceeding, and that doesn’t always sit well with the types of self-starters who get into the business world. If your company is a single-member LLC, you get to call the shots and run the organization’s affairs in the way you see fit.

Like any other major business decision, it’s important to be informed, which is why you should solicit professional advice before forming a C corporation, S corporation or LLC. Speak with your accountant to learn the tax implications of each classification, and don’t hesitate to consult an attorney if you have any additional questions. As long as your company meets your state’s eligibility requirements, an LLC is a great way to do business efficiently while also protecting your personal assets.

Sources:

Compare Tax Considerations by Business Type
C Corporation