When you start a new business, of course you want to make a profit. However, that’s not your only goal. You also want to protect your business and yourself from claims and lawsuits. You want to minimize your personal and business risk exposure to third-party debts and mortgages, damage claims for your employees’ actions, product or professional liabilities, and consumer protection problems.
Having the proper business insurance package is of great help, but your choice of business entity also plays a crucial role. Which form of business will be most beneficial to you depends on a variety of things, including who owns the business, how it is financed, what its liabilities are or might be in the future, what kinds of assets it owns, what types of activities it is engaged in, and what types of people are most likely to file claims against it. You should consult with an experienced business attorney who can answer your questions and advise you on which business structure best meets your needs.
Limited Liability Company (LLC)
Generally speaking, an LLC provides the best asset protection, not only of its own assets, but also the personal assets of its owners. It likewise provides excellent protection against creditors and/or damage claims. In addition, an LLC offers great flexibility in terms of ownership rights and percentages, as well as income allocation and tax deductions and credits.
An LLC is a legal entity separate and apart from its owners. It protects the business owner(s) personally from obligations related to the business. Also, should you be sued personally for something unrelated to your business, your assets in your LLC, such as cash and real estate, by law are out of reach for purposes of satisfying an unfavorable judgment.
Unlike a corporation, LLCs are not required to have annual meetings or record minutes and their income taxes are paid by their owners via a Schedule C attached to their personal income tax returns. LLCs have their own Employer Identification Number (EIN) since they must file an annual informational tax return. You can apply for an EIN from the IRS or use a third-party provider like Gov Doc Filing.