Are you still unsure of what business structure to use for your startup? There are several options available, each of which offers its own set of advantages and disadvantages. But for early age startups, choosing LLC may just be the best route to take. Here are five reasons why a limited liability corporation should rank on top of your list.
1. Avoid double taxation
One of the biggest problems corporations face is double taxation. Basically, this happens in a C-Corp business structure where the owner and the company are taxed separately. But when you form an LLC, you will be taxed as if you’re a sole proprietor. The net income of the company will be reflected on your personal tax records. It’s worth noting that in case you need to convert your LLC to a corporation, later on, you can do so by following a relatively simple process.
2. Choose where to set up your LLC
In general, it’s a good idea to form your LLC in the state where your startup operates. But for tax considerations, you have the option of establishing your LLC elsewhere. New Mexico, for instance, proves to be an attractive location for aspiring entrepreneurs. It offers quality asset protection comparable to other states but you can expect lower rates. Starting a New Mexico LLC can be the cheapest option in the long run. Still, it pays to consult a legal professional to make sure that you can lower your tax rates without breaking the law.
3. Protect your assets
Another reason to choose LLC is to provide protection for your personal assets. As you may know, the personal property might be the target of lawsuits in case your company accumulates bad debts. A sole proprietorship and a general partnership cannot match the asset protection afforded by an LLC. Essentially, members of the LLC are not personally responsible for the bad debts of the company.
4. Make amends easily
Setting up an LLC proves far easier than establishing a corporation. More importantly, however, this business structure doesn’t require a lot of maintenance. It’s easy to make changes to the articles of organization and operating agreement in case you want to add new members or sell membership shares. You don’t even need to take hours when making board decisions, something that’s required for C-Corps.
5. Register quickly
If you want to get your business up and running in no time, then it’s hard to go against the LLC as the perfect corporate structure. The registration process is fast and simple. Even without an attorney, you can complete everything in a few hours, provided you have all the necessary paperwork. After registering your LLC, you only need to obtain an employer ID number, business bank accounts, and checks. Just like that, you can start operating your business.
By now, it should be clear why most startups use the LLC structure. Perhaps the biggest obstacle you will face is choosing a name because you need to ensure it is unique from other business names, regardless of their company structure. But it’s definitely worth going through this hassle, especially when you consider the personal asset protection provided by an LLC.