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When Should I Get an LLC?
You may be thinking about starting your own business, But you're not sure how to come about it. You know that you are going to need a business account and you are going to need insurance etc. But when you are opening a business what should you file as?
There are 4 common business names that you should be aware of. They each serve their own purpose. We are going to look at which one is the best for you to file under. As well look at each of their pros and cons of that business.
When filing under a sole proprietorship, you will be most likely the only person who is running the business, meaning that you are probably either running the business out of your home, or own a small shop where you work out of. According to the IRS a sole proprietorship is the most common type of business structure in the U.S. The pros of a sole proprietorship, is that you have total control over your business, and another great advantage is that it is the simplest business structure for businesses, However the downside is that you have no protection with this business structure. Meaning that your personal finances can be affected by your businesses debt and financial obligations.
A limited liability company or "LLC" as it is also known as, is one of the newest forms of the business structure. The pros of an LLC are that it limits the liability of losses and debts to the companies owners. Meaning that your personal finances cannot be affected by your business loss and debts. However starting an LLC can be a bit costly, So make sure you have a business attorney or an online website to help you get everything you need for your LLC. Normally you would get an LLC when you are starting a small business or your just business is just starting. You can always change the type of filing later on!
As you can imagine a partnership is when you and someone else is starting a business. Now there are two different types of partnerships. A limited partnership, and a general partnership.
Limited partnership- A limited partnership is when you file a formal agreement as well as file an official agreement of partnership with your state. With a limited partnership, You are able to control how much you are liable for by how much stake you have in the company.
- General partnership- A general partnership does not require a formal agreement with the state, You can actually do a verbal agreement. The problem with a general partnership is that you can actually be responsible for the entire company if something goes wrong. The best scenario to file for a general partnership is if it is with family.
I'm sure everyone has heard of a corporation, Probably one of the biggest classifications there is. But when would you file for a corporation? Corporations are taxed very heavily, As all profits and earnings are counted as your personal income. If you share the profits with another business partner, it is then taxed again. Although a huge pro of a corporation is that you can transfer to new owners easily, and that your personal assets can not be touched due to pay for business debts.
We hope that you learned a little more about business filings, as well as which one is best for your business. Starting a business does not have to be stressful. We would highly recommend that you consult a professional to help you with your business filing. As you do not want to overlook something and have to start the process all over again.