When should I form an LLC?

On Behalf of | Jun 9, 2020 | Business Law |

How you form your business will have long-term implications on whether your company thrives. There are many elements that factor into your path. When confronting the structure of your business in its beginning stages, you will need to consider issues like the potential size of your company, its financial overhead and the type of business products or services you want to run.

First, let’s look at the details surrounding the formation of a Limited Liability Company (LLC). Some perks, for example, may draw you to this structure. They include:

  • Simplicity: Some people form an LLC because forming one could potentially save time and money with fewer procedures and paperwork than other formations.
  • Taxes: You may also seek to form an LLC because it makes for a simpler tax return and you may have the option to deduct certain losses. Though, the more members you have in your LLC, the more likely it is that your taxes become more complex.
  • Liability: Having a business formed in a “limited liability” status will potentially shield your assets from lawsuits or bankruptcy. Though, note that your company will not be protected should you commit a crime or commit gross negligence.

Additionally, you may also have your legal counsel place your LLC in a living trust. Some business owners may do this for the tax benefits that ensue.

That is not to say that LLCs are not without their issues, though. Some drawbacks to forming an LLC include limitations in stock protections and the potential lack of administrative authority could lead to issues down the road.