When starting a business, you’ll have to make several important decisions about how you want to structure and operate your company, such as becoming an LLC. When creating a business there are many things to consider, such as liability concerns, taxes, and personal financial resources. There are many different types of businesses that you can start, but there are also many different types of business structures available for those interested in starting their own firm. 

If you’re just getting started, an LLC might be the right choice for your small business. An LLC has some very specific benefits for small businesses in particular. Let’s take a look at what an LLC is, if it’s right for your business, and how to form an LLC if you decide that’s the best option for you.

What is an LLC?

An LLC is a Limited Liability Company. It is a type of business structure where the owners of the company are responsible for paying taxes on the profits of the business, but are not personally liable for the debts or liabilities of the business. In other words, an LLC is a hybrid structure of a sole proprietorship or partnership and a corporation. 

The main defining feature of an LLC is the limited liability of its owners. The owners of the company are considered to be separate legal entities from the company itself and are therefore not liable for any debts or obligations that the company may incur. Owners of the LLC structure are called members. Members have the liability protection of a corporation, but they also have the flexibility of a partnership.

How to Form an LLC

To form an LLC, you will need to file the following documents with your state.

Articles of Organization

Your Articles of Organization is the official document that creates your LLC and tells the state what it does. This is the first step toward forming your LLC. You’ll need to file this form with the state, and it must include certain information, such as the name of your company, the address, and who the owner(s) are. You’ll also need to pay a filing fee at this time. 

Operating Agreement

An operating agreement is a business contract between the members of your company. It outlines what each member’s rights and responsibilities are in the company. It’s basically a contract that states the relationship between the owners of the company and what they are each expected to do. 

Tax ID

You’ll need to obtain a Tax ID number for your LLC. This is a federal identification number that helps the government track and organize businesses.

There are a number of ways to form an LLC, but all of them require state-specific paperwork. The most common method for forming an LLC is to file articles of organization with the state’s Secretary of State. Each state has its own process for filing, and some states allow online filings as well as paper filings.

Every state has its own set of LLC laws, and they can change over time. Because of this, it’s important to do your research before starting an LLC.

Benefits of an LLC for Small Businesses

There are many benefits of becoming an LLC. For small businesses, these benefits include:

Tax Advantages

The profits of an LLC are taxed at the business level as opposed to being taxed at the personal level. This means that the owners of the business won’t be taxed personally on the profits of the company, just on their earnings.

Liability Protection

If someone sues your business, they cannot sue you personally for any debts your company has incurred. Your liability protection is like having car insurance for your company. You have some separation if someone is injured or has property damage from your company’s actions.

Investing: When starting a business, you may have to put up a lot of your own cash. However, depending on the state you live in, you might not have to put up as much cash to start an LLC as opposed to a corporation. 

Flexibility

One of the biggest advantages of an LLC is that it gives you the best of both worlds. You get the liability protection of a corporation with the flexibility of a partnership. 

Easier to Buy Insurance

When starting a business, it’s important to have proper insurance. However, most insurance companies will not insure personal assets. This makes it difficult for small business owners who have invested a lot of their personal assets in their company because their insurance may not cover their assets. With an LLC, you can buy insurance that protects your business assets without affecting your personal assets.

Limitations of an LLC

There are some limitations or disadvantages of forming an LLC. These include:

Additional Paperwork

If you want to form an LLC, you must file articles of organization with your state. When you form a corporation, you don’t have to file any paperwork. 

Cost

Setting up an LLC is not free. Depending on the state you live in, you’ll have to pay a filing fee to create your LLC. However, the filing fee for an LLC will be less than the filing fee for a corporation.

Time Commitment

When forming an LLC, you will have to file the paperwork and follow the rules of your state. Depending on your state, this could take anywhere from a few weeks to a few months.

There are many benefits to starting an LLC, but there are also some downsides. It’s important to understand the implications of forming an LLC before you decide whether or not this is the right business structure for you. 

If you decide an LLC is right for your small business, then you’ll need to follow the rules for forming this structure and be prepared to pay the filing fee. If you decide that an LLC is not right for your small business, that’s OK too. There are many other business structures you can choose from.

Sole Proprietorship vs. LLC

When deciding between an LLC and a sole proprietorship, consider the differences between each one. LLCs offer limited liability, while a sole proprietorship is not limited. 

Sole Proprietorships

Sole proprietorship is the most common form of business ownership. It is also one of the simplest forms of business ownership because there is no need for a formal organizational structure. 73% of all businesses in the United States are sole proprietorships. 

Sole proprietorships are easy to form. If you use your own name, you may not have to file any paperwork to get started. This depends on your state.

However, as a sole proprietor, you are personally responsible for all the debts and obligations of your business, including debts that your business has incurred without your knowledge or consent. This means that if someone sues your business, they could sue you personally as well—and they might win. This can be very risky if you own a home or other property that isn’t protected 

LLCs

LLCs offer some of the benefits of a corporation, like limited liability and protection from creditors, while avoiding the cost and complexity of forming a separate corporate entity. The main advantage of LLCs is that they offer a measure of protection for businesses, especially in higher-risk industries

LLCs are more complex than sole proprietorships and they require more time and effort to be formed. The state where you live determines the rules for the formation of LLCs and different states have different rules.

Another significant difference between an LLC and a sole proprietorship is taxation. While the IRS sees both types of business structures as pass-through entities, LLCs are subject to a variety of taxation rules, and you may be required to pay higher taxes with an LLC. In addition to paying taxes on profit, an LLC is subject to other obligations. For instance, the IRS requires a multi-member LLC to file a business tax return and all the members must attach Schedule K-1 to their personal tax returns.

There are many advantages and disadvantages to both business structures. However, for most budding business owners, an LLC can be beneficial for businesses of a certain size and risk. The legal protections it offers may outweigh the extra cost involved in running an LLC.

Contact Answer Aide to Learn More About How An Answering Service Can Help Your Business

Whether you operate an LLC or a sole proprietorship, an answering service can be a great way to keep in touch with customers while you operate your business. We can answer routine calls that come in or provide coverage for your customer service team at night and on weekends. Plus, instead of hiring someone full-time to answer the phones every day, you can use your answering service to take care of most of these functions. 

If you’re ready to get started with a professional answering service, we’re here to help. Contact Answer Aide by calling (866) 427-3500 or by filling out our online form. We’re happy to partner with you to support your business while it grows.