Starting a business is an exhilarating creative journey that develops an entrepreneur’s character and mindset. It is no small feat that often, numerous individuals fail to realize how tedious handling its operations is. On a technical level, it requires a lot of paperwork, government permits, a proper business plan, and finances. Those processes already take much time and effort that are very costly, draining, and overwhelming. A business is a huge commitment that a lot of people underestimate by neglecting challenges that happen such as coming up with a unique product or service, a strong mission, and vision, having sufficient capital and cash flow, good partners and employees, needing to work more than what is asked, pivoting strategies, having the stamina and motivation to continue despite poor sales and more.
More often than not, novice entrepreneurs institute their business as a sole proprietorship. The danger of this setup is the high chance of risking your personal assets and liabilities for debts. To avoid this complication, an LLC is your best bet, especially for smaller businesses. Forming an LLC has a lot of benefits, for instance, in setting up an LLC in Virginia, you would only pay $100 in filing your Articles of Organization, note that this is not the total Virginia LLC cost as there are other fees existing such as reserving your business name.
To know more about why setting up an LLC will help your business, continue reading.
- Cheaper and more manageable
A Limited Liability Company is a combination of the favorable parts or partnerships and corporations into one single entity that offers each owner their own liability protection, a workable management structure, specific tax advantages, and more. It is even cheaper and more manageable to run. It offers personal asset protection wherein owners are not personally liable for any debts incurred by the business. Debtors cannot be able to collect personal assets as collateral such as cars, houses, or money in order to pay for the debt.
- Easier to set up
LLCs also allow for any profit or loss to pass through the business to the owner’s tax return. It is also the simplest entity to run as compared to corporations and sole proprietorships since it does not require several officers, board members, and other administrative positions needed in other setups. Formalities are not as established without the need for board meetings, written minutes, and filed annual reports. It can have as many owners as desired which may ease the burden of running each operation necessary for the business to run smoothly.
- Better profit distribution methods
From an outside perspective, it also gives customers the assurance of legitimacy. Furthermore, profit distribution is adjustable to the preferences of the owners. One owner may receive more profit if they contributed more to the business as compared to the other if each partner deems fit. The entity also gives a similar level of record-keeping as that of a corporation. Unlike a C-corporation using the accrual accounting method, most limited liability companies may utilize the cash accounting method. In simpler terms, income is not earned until it is received by the business.
Operational simplicity is an edge that LLCs have given that they have limited needs for registration paperwork and fewer starting costs in regards to liabilities. An LLCs flexibility and manageability is a much more favorable entity structure for a small business. While corporations, sole proprietorships, and LLCs offer their very own personal liability and other related benefits, an LLC may be able to enjoy certain tax advantages, management flexibility, and minimal recordkeeping and reporting necessities.