When starting a new business, one of the most important decisions you’ll make involves choosing the right business structure for your vision. Should you operate alone as a sole proprietorship or with others in a partnership? Do you need to issue stock in order to achieve your financing objectives, necessitating a corporate structure? Or should you – whether solo or with others – form a limited liability company (LLC)?
One of the primary reasons entrepreneurs opt to structure their new ventures as LLCs is the limited liability protection that this formation option offers. This safeguard means that owners’ (called members) personal assets are generally protected from business debts and liabilities. If the business incurs debt or is sued, the members’ personal property cannot generally be seized to satisfy debts or judgments. This protection can provide significant peace of mind, especially for small business owners.
Flexibility in management and ownership
Unlike corporations, which have a fixed management structure, LLCs can be managed by the members (member-managed) or by appointed managers (manager-managed). This flexibility allows for a structure that best suits the needs of the business and its owners. Additionally, there are no restrictions on the number of members an LLC can have, and members can be individuals, corporations or other LLCs.
Easier compliance and fewer formalities
LLCs generally have fewer compliance requirements and formalities compared to corporations as well. For example, corporations are required to hold annual meetings, maintain a board of directors and keep extensive records of corporate minutes and resolutions. While LLCs should maintain solid records and have an operating agreement, they are not typically required to adhere to the same level of formalities. This can make an LLC easier and less costly to maintain over time.
While an LLC offers many benefits, it’s important to consider your specific business goals and needs before committing to a particular structure. While this formation option is popular – with good reason – it is not the best structure for every vision.