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Why would you start an LLC?

On Behalf of | Oct 26, 2022 | Business Formation |

One of the first things you have to do when starting a business is to determine what business structure is going to suit that company the best. For instance, someone who is just starting a business on the side may choose a sole proprietorship. Someone who is expanding an existing business into a new area may choose a corporate structure. It all depends on what the goals are.

One of the options you have is to use a limited liability company. This is known as an LLC, and it is definitely one of the most popular business structures. Why do people pick it so often?

It protects you from liability

In some ways, an LLC can be seen as a shield that stands between you and potential financial liability. That liability is only owned by the company and not by you personally. This is different than the responsibilities you’d face if you ran a sole proprietorship or just worked under your name.

One way that this helps is if you want to take out business loans. You certainly hope that you get a good return on investment and you can pay the loans back, but what if you can’t? You don’t have to use your personal assets, such as a retirement fund, to pay what you owe. Even if the business fails to pay the money back, and the business has to declare bankruptcy as a result, you don’t have to do so yourself. There’s no personal risk.

This can also help in situations in which someone gets injured. Say that a person gets injured on your property and your company gets sued for being negligent and allowing the injury to happen. It may be true that the company has to pay that individual and cover their medical costs, but you do not personally have to do so.

In other words, this isn’t a way of getting out of liability or shirking your debts. It’s just a way of making sure that the responsibility to pay the debts falls on the business and cannot create a hardship for the business owner.

Getting started

These are definitely not the only reasons to use an LLC, but they help to show you why it’s important to look into all of your options as you start a business.