Should I create a limited liability company (LLC)?

There are two main reasons to become a limited liability company the first one is to protect your assets and the second is to legitimatize your business. Similar to a Corporation, the main advantage of an LLC is that it creates a legal structure around your business that makes it difficult for someone to sue you and obtain your personal assets as a result of a liability from the business. In fact, an LLC can offer better asset protection then a Corporation because it is easier to maintain the formalities of an LLC and if someone is successful in a lawsuit against you they can only obtain future profits interests, they cannot obtain shares in your stock as in a Corporation. LLCs also make an ideal structure to contain real estate investments.

The second reason to establish an LLC is to enhance the perception of legitimacy to your customers or to the public. Often times, a sole proprietorship does not convey to the public that a legitimate business venture is being undertaken. In fact many people believe that if you aren’t a Corporation or an LLC then you’re not legally a business. Although this is not true perception can be more important than reality for the small business that is trying to gain a foothold in their market.

It is important to note, that an LLC does not change your tax status. That is, an LLC can be a sole proprietor, a corporation, or a partnership. This is why they call the LLC a wrapper. Because it just wraps and protects business entity that’s inside the LLC, it does not change the tax status of of the business. Once you are in an LLC you can pick and choose however you would like to be taxed; a sole proprietorship a Corporation or even an S Corporation can all be LLC’s.

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