Turn That New Business Into An Llc

With the downturn in employment, many people are going from holding jobs to creating their own

. If you've started a small business, or plan to do so, you might want to consider the advantages of becoming an LLC.

LLC (Limited Liability Company) is fast becoming one of the most popular forms of organization in business because of the inherent advantages it affords its owners.

During start-up, defining your organization type as an LLC is easier than setting it up as a sole proprietor. It is even possible to convert your organization into an LLC even if it's already been previously set up and defined as another type of business organization.

If you started your business as a sole proprietor, most probably you only had to file a DBA (doing business as) form in your municipality. You may not have been required to register your business with the state. An LLC is one of the forms you can choose when registering your business.

There are advantages and disadvantages to establishing an LLC, however the biggest advantage is providing liability protection to owners of the company. The business can establish its own debt, for which owners are not liable should the business fail. Owners also may not be personally liable if the business is sued for some reason.

Other benefits include pass-through taxation, which means owners still claim income or loss on their individual income tax returns; improved credibility with employees, creditors, etc.; fewer ongoing formalities and restrictions than corporations; and flexible management. Unlike corporations, LLC's are not levied business taxes, does not have a board of directors nor does it convene board meetings.

Its main disadvantages are in the aspects of legalities and fees. When starting an LLC the Articles of Organization have to be filed and paid in the state where you have registered your business. Some states also ask for annual report or franchise fees. These are free however for sole proprietorships and general partnerships and is reasonably-priced for small businesses. Ownership is also difficult to transfer as there are no shares to speak of and any changes must be duly approved by all the owners.

An LLC may be set up by a single owner in some states, but most states insist on at least two. Another disadvantage is a requirement for the payment of self-employment taxes, something you would have to do if an LLC becomes your only income anyway.

Because of the numerous legal requirements, many people who wish to start an LLC seek the services of attorneys to handle the paperwork. For those who are confident enough of navigating through the entire process on their own, you may also download the necessary forms from the internet. Just make sure that you use the forms which are appropriate for your state and look into some special requirements as applicable if you intend to do the job on your own.

by: Francis Macnamara

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