Should You Choose an LLC Business Structure?
When you go to a family reunion and tell your cousins that you plan to open a business in the next few months, they will usually ask you what kind of business, and they will expect an answer such as “a bakery,” “a dog grooming service,” or “a yoga studio.” If one of your cousins is an accountant or a business lawyer, they might ask you whether your business is an S-corporation, a sole proprietorship, an LLC, or some other term referring to a business structure. Choosing a business structure is one of the first decisions you make when starting a new business, and it is one of the most important. Choosing the wrong business structure can lead to you paying large amounts in taxes, or it could even leave you more vulnerable in the event of legal disputes involving your business. Consulting a small business attorney before applying for a tax ID for your business can help ensure that you are choosing the most appropriate business structure.
What Is an LLC?
LLC, which stands for limited liability company, is the most customizable business structure acknowledged by the laws of the United States. Its members can be individual people, companies, or some of each. LLC also have a choice about which set of taxation rules (for example, the C-corporation rules or the S-corporation rules) they want to follow. The identifying feature of an LLC, though, is its limited liability, which is also its greatest selling point. Limited liability means that, if you are a member of an LLC, and a court rules against your LLC in a lawsuit, the court cannot require you to use your personal assets to pay the judgment against the LLC.
Pros of the LLC Business Structure
- An LLC can have as many members as you choose; you can even be the only member
- The members, when establishing the LLC, can choose which set of business tax rules to follow
- Your personal assets are safe from the LLC’s debts and judgments against the LLC (a few exceptions to this rule apply)
Cons of the LLC Business Structure
- It is not possible to pay yourself wages from an LLC that you own; you are either a member of the LLC or an employee of it, not both
- Starting and maintaining an LLC requires more paperwork than some other business structures do
Choose Your Business Structure Wisely
It is expensive and time-consuming to change the business structure of an existing business. It is virtually impossible to change it retroactively. Therefore, doing your due diligence by consulting a lawyer before you apply for a tax ID to start a new business could save you a lot of time and money in the long term.
Let Us Help You Today
It is a good idea to meet with a small business attorney before you start a business, so that you can make an informed decision about your business structure. Contact the Washington DC small business lawyers at Tobin, O’Connor & Ewing for help.