With the advent of democratized tools and despite the current pandemic in the backdrop, Financial Times reports a boom in entrepreneurship and new companies being set up around the world.
Before you go any further and make necessary commitments investing in setting up your business, it is best to consider the different business types and find the most suitable for your setup to avoid being included in the 90% of startups that usually fail within their first year.
This allows you to organize your resources according to their intended function. This will improve your chances to produce a better outcome by providing your customers with good service while earning an equitable profit.
This is often easier said than done. Despite the available information, technology, and countless references about starting a company, most entrepreneurs still encounter failures when starting their companies.
Most experts believe that success in business does not entirely rely on the objectives, programs, projects, and activities that management lines up. A company may be executing its strategy to the letter but could still fail due to weak risk management.
Setting up a limited liability company (LLC) set-up is considered a best practice in risk management. It provides owners with liability protection, tax leverages, and management flexibility.
In this guide, we will explain some of the benefits and importance of an LLC setup.
Owner Protection
The LLC gets its name from this concept. In an LLC set-up, liabilities incurred by the business can only be charged upon the assets of the business itself. This includes debts, liens, mortgages, and lawsuits. This means that the owner’s assets cannot be pursued by the claimants of the LLC’s liabilities.
But this immunity has its limits. Illegal acts and certain commissions of negligence on the part of the owner can lead to the cancellation of this protection in some instances.
Forwarded taxation
LLC’s do not pay the taxes at the level of business entities. Income or losses from the business is “passed-through” to its members and reported on their income tax returns. This means that taxes are paid at the individual level.
On the other hand, corporations are taxed on the business level while their shareholders are taxed depending on the income distributed to them.
Easy access to membership
Owners of an LLC are called “members”. Members can range from individuals, partnerships, business groups, trusts, or even corporations. Essentially, there are no limits to the number of members of an LLC. In contrast, corporations have a regulated number of owners, and shareholders are often limited by restrictions.
Less paperwork
The amount of paperwork can be a hurdle, especially for a small company with a limited staff. The owner, including its sales team, focus becomes shifted to the long list of compliances instead of homing in on the key management components that they need to be on top of.
Fortunately, applying for an LLC setup avoids nascent companies from being embattled with tons of paperwork as compared with applying to become a corporation.
LLC’s skip the required annual meetings and comprehensive records that are required of a corporation. A corporation’s obligation to pay annual dues ties it up with the need for extensive recordkeeping. This is not the case for LLCs.
Adaptive management set-up
Corporations are locked to the management set-up that involves a board of directors, who are the policy-making entity, and supervisors that manage the nitty-gritty processes of everyday operations. Meanwhile, shareholders or owners meet annually to choose their board of directors and attend to other company matters.
LLC’s, on the other hand, can be directly managed by the members. This can be a favorable structure on a case-to-case basis. Yet owners may also choose to elect a management group if needed.
Forming an LLC
Your LLC is waiting to be formed with these steps:
- Select your state
- Name your LLC
- Choose a registered agent
- File LLC Application Documents
- Draft an LLC Operating Agreement
- Get an employer identification number (EIN)
LLC’s have become increasingly popular for large business firms and small entrepreneurs as well. Professional Services are available to help you form an LLC today.
This type of business is worth a serious look if you want to own a business entity that shields your assets from legal impediments.
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Setting Up Your Company: Why Having an LLC is Crucial for Your Success - CEOWORLD magazine
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