Understanding LLC – The Basics

Starting a Business

When creating a business, it’s crucial to decide which structure best suits your needs. One of the most common business structures is an LLC, or Limited Liability Company. By creating a business entity, you separate your personal assets from the business. When you separate your assets from the business, you legally limit your personal liability, hence Limited Liability Company. LLCs are also popular because they are one of the easiest business entities to open and maintain.

Sole Proprietor v LLC

If you bring in money acquired through freelance, contracting, consulting, or if you report as self-employed, then the government may automatically classify you as a Sole Proprietor. A Sole Proprietor reports business income under their own name, therefore making you personally liable for debts. A Sole Proprietor has no legal separation between themselves and their business, making them legally responsible for contract breaches, lawsuits, and debts.

How To Create an LLC

You’ll need to file Articles of Organization with your state, which are essentially business formation documents. You will have to pay the application and start-up fee, which varies by state. You will also have to create a name that is distinct from any other LLC in the state and register it. You’ll also need an EIN, or Employer Identification Number, for tax purposes.

Paperwork & Taxes

Many states require LLCs to file an Annual Report to document the progress of the business. Ensure good bookkeeping in order to provide accurate records. You should create a separate bank account solely for the business. During tax time, report your LLC income through a Schedule C. With an LLC, you may be able to elect for S Corp status. S Corp status may reduce the amount of tax paid on your business income.

Benefits of LLC

In addition to the legal protections brought about by establishing a separate business entity, LLCs offer entrepreneurs credibility. Having an established LLC conveys professionalism to your clients, positioning your brand as legitimate and respectable. Clients and lenders tend to take a business more seriously when it operates under a formal legal structure. An LLC gives you and your business protection, tax flexibility, and credibility that can transform how you operate and how others perceive your business.

Fun Fact: I navigated this process as a stubborn twenty year old and maintained profitability and compliance for 8 years. If you'd like a hand to help you along the way to successful business ownership, get in touch!