Starting your own business is exciting. However, there are many decisions to make. One of these is picking the business entity for your company. For many small business owners, setting up a business as an LLC, or a limited liability company, is a wise decision. Here is what you need to know about setting up an LLC.
Typically, if you are starting a business by yourself or with a partner, you may consider setting your business up as an LLC. A limited liability company limits your personal liability, much like a corporation. However, it is a much simpler structure with much less paperwork.
It protects your personal assets
With an LLC, your personal assets are generally protected. If the business is in debt or involved in a lawsuit, only your business assets are liable. That means creditors would not be able to take your house to satisfy a business debt.
Filing taxes is easier
With an LLC, filing your taxes is simpler as well. An LLC is considered a pass-through entity, so you report profits and losses on your personal income taxes. You also avoid the double taxation that corporations must pay.
It gives your business credibility
Establishing your company as an LLC also lends credibility to your business. This can be beneficial if you are looking for investors. It also makes your company seem more official to consumers.
There are only a few steps to setting up an LLC
Setting up an LLC is a relatively simple process. You first search the Secretary of State website to make sure the name of your business is not taken. You typically need to include the LLC designation in your company’s name.
Then you file the articles of organization for your business. This paperwork usually includes basic information like your company’s name, address and the names of the owners. According to CNBC, this document officially establishes your LLC with the state. You will have to pay a fee to file this document in the state of Illinois.
You must also name a registered agent, which is a person who receives any legal documents for the business. This is usually one of the owners of the LLC.
Then you must create an operating agreement for your LLC, particularly if there are multiple owners. This document will name each owner, their responsibilities, percent of ownership, how profits and losses are divided and voting rights. If you are the only owner of your LLC, your operating agreement will be much simpler. However, when there are multiple owners, you may want to have a business attorney draft, or at least review, your operating agreement.
An LLC provides more protection for your personal assets and is simpler to file taxes for. This type of business also avoids double taxation, but still lends your company an air of legitimacy. Setting up an LLC is also much easier than other business entities.