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What kind of business entity is best for a small business?

On Behalf of | Apr 5, 2021 | Business Law |

If you are starting a business, you may want to select a business entity that has the potential to grow with you. That’s why it’s smart to look beyond the simple sole proprietorship that many people turn to and to look into setting up a limited liability company, or LLC.

An LLC is a combination of a sole proprietorship and a corporation, but it works very well for a small business in most cases. This is because owners aren’t held personally liable for the business. On top of that, profits and losses can be directly added to the owner’s income without being taxed with corporate taxes.

When is it beneficial to have a limited liability company?

You may benefit from having a limited liability company if you have a medium- to high-risk business. For example, if you have a business where you’re more likely to be sued due to increased interactions with consumers, then an LLC may be right for you.

Remember that LLCs may end up being dissolved if one or more members leave, and all members have to pay self-employment taxes. On the positive side, there is limited liability for the business and there are no corporate taxes to worry about.

How big does your company have to be to become an LLC?

There are LLCs that are made up of only an owner, and there are LLCs made up of hundreds of workers and a highly structured business arrangement with CTOs, CEOs and many others in charge. Whether you have a small business that is just starting out or you are a business looking to add a few employees thanks to your growth, an LLC could be the right option for you.

Can you change your business’s structure if you already have one in place?

Yes. In fact, it’s a good idea to review your business and goals from time to time to see if a different business structure would work better for you. This is something to discuss with your attorney, because they will be able to give you more information about all of the available options that could be right for you.