The advantages of forming an LLC

On Behalf of | Nov 18, 2020 | Business Law |

Going into business a sole proprietor is the fastest and easiest way to get a new commercial venture off the ground in Arizona, but this approach has a major drawback. This type of business structure has unlimited liability, which means that if a sole proprietor can lose their personal as well their business assets if they are sued. Forming a corporation protects personal assets, but the process is more complex and more expensive than setting up a sole proprietorship.

Limited liability companies

Limited liability companies offer entrepreneurs a simpler way to enjoy the liability protection of a corporation. The owners of an LLC are known as members, and there is no limit to how many members an LLC can have. It is also possible to form single-member LLCs, which is why this business structure is so attractive to sole proprietors.

Tax benefits

In addition to protecting their personal assets from business-related litigation, LLCs provide entrepreneurs with several tax benefits. Members can opt to have their business profits taxed as personal income like a sole proprietor or S corporation, or they can choose to be taxed like a C corporation. The corporate tax rate is lower, but compensation paid to members will be taxed a second time. However, this arrangement could make sense if members plan to use most of their profits to grow the business.

Legal issues

Attorneys with business law experience could help entrepreneurs to choose the most appropriate business structure by explaining the advantages and disadvantages of sole proprietorships, partnerships, LLCs and corporations. They may then file the necessary paperwork to state agencies and the Internal Revenue Service. Attorneys could also submit business permit and license applications and seek to ensure that companies are in compliance with federal, state and local regulations.