Why You Should Start an LLC

Protecting your personal assets while saving on taxes are among the best reasons to launch your business as a limited liability company.

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If you’re ready to start a new venture, the limited liability company (LLC) structure might be the right one. But why create an LLC? And how do you know if that type of entity fits your needs? Take a look below at the many reasons you might want to start an LLC. If you decide your business should be an LLC, our catalog of business support and maintenance services can help you smoothly form and run it. 

4 Reasons to Start an LLC 

There are usually four reasons why an LLC is the choice of entity for many business owners. Some entrepreneurs choose LLCs for different or additional reasons specific to them, so it’s important to speak to legal and financial experts about your unique needs before making a selection. 

Reason 1: Personal Liability Protection

If you want to start a business without filing paperwork with your state, you can do it, but you will open yourself up to many legal and financial pitfalls. Solo owners or joint owners who start businesses without filing formation paperwork start sole proprietorships or general partnerships. 

Typically, a sole proprietor or general partner is personally liable for any business legal or financial woes. Without liability protection, a business creditor or anyone who sues your venture can collect a judgment or debt from your personal assets. This can include your personal savings, your home, your car, etc.

Why start an LLC? You can usually avoid incurring personal liability for business issues by forming an LLC. In most cases, a business creditor or litigant can’t touch your personal assets to satisfy an LLC’s debts unless you commingle assets or use your LLC for personal matters.

If you want to learn more about these crucial entity differences, you can take a peek at our LLC vs. Partnership and Sole Proprietorship vs. LLC pages. You can also consult our LLC vs. S Corp and Business Structures pages for more background on how LLCs tend to compare to many business entity types. 

Reason 2: Taxes

An LLC isn’t the only commercial entity that can shield you from personal liability. A corporation can also protect you from legal and financial troubles, but corporate shareholders have more tax liabilities than LLC members.

Corporate shareholders are doubly taxed. This means the corporate entity has to pay taxes on its income, while the shareholders have to pay income taxes on the distributions they receive from the corporate revenue as well. On the other hand, LLCs don’t pay income taxes at the entity level. Only LLC members pay income taxes on their share of the business earnings. This LLC taxation is called pass-through taxation. 

Reason 3: Low Startup Costs

If you’re looking for a business structure that provides personal asset protection and saves you money on startup costs, an LLC is likely your best option. Someone who wants to start a corporation must file what is typically called Articles of Incorporation in their state. And an individual who wants to run an LLC usually files Articles of Organization. Corporation filings can be significantly more expensive than LLC filings. Depending on the state, the difference between starting an LLC and a corporation can be hundreds of dollars.

Reason 4: Startup and maintenance are less formal

Just as important as (or even more important than) your money is your time. Running an LLC can save you time compared to a corporation because starting and running an LLC involves less formality and paperwork. You have to submit LLC formation paperwork to your state’s agency that oversees business activities. However, LLC owners don’t have to be bothered with shareholder meetings and the extensive routine reporting that falls on corporate shareholders. 

How to Create an LLC Online

Starting and running an LLC can ease many business concerns, but it’s not without effort. To start your LLC, you’ll need to make some crucial decisions and file paperwork with applicable state and federal agencies.

Typically, starting an LLC involves or requires you to take the following steps:

  • Choose an LLC name that’s distinguishable from other business entity names registered in your state.
  • Select a registered agent to receive legal and business notices for your LLC. Our registered agent service can handle this for you.
  • Complete and file Articles of Organization or a Certificate of Organization with the relevant agency in your state.
  • Draft and sign an operating agreement that dictates how your LLC will handle management, conflict resolution, transfers of ownership, sharing profits and losses, and other business matters.
  • Apply for an Employer Identification Number (EIN) from the IRS so you can properly pay your business-related taxes and open a business bank account.

Not every state requires LLC members to have an operating agreement, but it’s still crucial that you have one. With an operating agreement, you can create your own rules for conducting LLC business instead of depending on your state’s default rules for conduct. And, if you’re at a loss for how to get started on your operating agreement, you can come to us. Our Operating Agreement Template gives you a solid outline for drafting a document that will help you run your business the way you want. 

We can help!

Wherever you are in your startup journey, your journey can be easier with us. Our LLC Formation Service can help you through every step of the process, and we provide expert support whenever you have a question. For $0 plus state fees, we can help you get your LLC up and off the ground in no time! 

Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Why Form an LLC? FAQs

  • Why get an LLC? There can be so many reasons to start an LLC in your state, including liability protection, tax savings, and fewer startup costs and formalities than a corporation.

  • You don’t need to start an LLC to start a business, but starting a business as an LLC can provide you with more protection and minimize your tax liabilities.

  • Running your business as an LLC can shield your personal assets from legal and financial problems your venture might encounter. An LLC can also help you avoid the double taxation that many corporations face. On the other hand, forming an LLC is more complex and expensive than running your business as a sole proprietorship or general partnership. Also, LLC members have fewer options for raising capital than corporate shareholders have.

  • One of the biggest tax advantages of an LLC is the fact that its owners enjoy pass-through taxation instead of corporate double taxation. Another is that LLCs also have the option of being taxed as an S corporation or a C corporation if it’s more financially advantageous for them.