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3 reasons LLCs are so popular with entrepreneurs

On Behalf of | Jun 3, 2024 | Business Organization

There are many different business organizations people can start if they want to run a company. Those types of businesses range from a relatively simple sole proprietorship to an incredibly complex nonprofit corporation.

Many entrepreneurs pick a business type that falls in the middle of that spectrum. Specifically, they choose to start a limited liability company (LLC). LLCs can be retail businesses or small professional practices. Those starting businesses in a variety of different sectors might choose an LLC as the best option for their entrepreneurial endeavors.

What benefits associated with LLCs inspire so many people to choose this type of business structure over other options?

Protection from liability

As many people can infer from the name, an LLC helps reduce the legal and financial liability an entrepreneur assumes when starting a new company. They have protection from liability if people sue the business and protection from personal financial liability for the company’s debts. While the protection is not absolute, it does diminish the risk involved in starting a new company.

Potential tax benefits

There are different income tax rules that apply to different business types. LLCs can be particularly beneficial for individuals who intend to run a company all on their own. The tax rules for LLCs may allow the owner of the organization to claim any profits the business generates as personal income, which in turn makes them eligible for standard income tax deductions, credits and write-offs that can limit what they must pay.

A relatively streamlined formation process

Starting a corporation can be a very challenging endeavor. An entrepreneur typically needs to have a board of members who intend to invest in the company or help oversee its operations. The process of starting a corporation can take weeks to complete and is fraught with pitfalls that the average person might unintentionally overlook.

Thankfully, LLCs are relatively simple to start and may be less challenging to run than more complex business structures. Despite the ease of creating an LLC, the company still looks more professional than a sole proprietorship run in the name of an entrepreneur.

Choosing the right form of business to start can be as important as acknowledging and addressing operational risks with contracts and insurance. Many people struggle to select the right business type when starting a company. Obtaining appropriate guidance during the startup stage of building a new business can help someone choose the right business type and reduce what risks they must grapple with during the business formation process. An LLC could be a viable option for those in a variety of different circumstances.