{"id":9406,"date":"2023-09-29T07:15:55","date_gmt":"2023-09-29T11:15:55","guid":{"rendered":"https:\/\/www.smekdigital.com\/?p=9406"},"modified":"2023-09-29T07:17:18","modified_gmt":"2023-09-29T11:17:18","slug":"essential-protection-limited-liability","status":"publish","type":"post","link":"https:\/\/www.smekdigital.com\/essential-protection-limited-liability\/","title":{"rendered":"Essential Protection: The Significance of Limited Liability Company in Modern Business"},"content":{"rendered":"\n<p>Any time you <a href=\"https:\/\/www.smekdigital.com\/top-7-marketing-strategies-for-your-new-business\/\">launch a new business<\/a>, you\u2019re inevitably taking on some calculated risks. Even if you make all the right strategic decisions, there\u2019s always a chance that you could lose money, face legal peril, or simply not find the audience you\u2019d hope for.<\/p>\n\n\n\n<p>While entrepreneurs can\u2019t totally avoid risk, they can take smart, strategic actions to mitigate it. One of the best ways to do so is to choose the right legal structure for their business, one that limits personal liability exposure. And generally speaking, that means choosing the Limited Liability Company, or LLC.<\/p>\n\n\n\n<p>In a business environment that\u2019s increasingly litigious, the significance of the LLC structure can\u2019t be overstated. In fact, it\u2019s by far the most popular option among <a href=\"https:\/\/www.smekdigital.com\/follow-these-easy-steps-and-improve-your-small-business\/\">small business owners<\/a>, in large part due to its effectiveness in moderating risk.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is an LLC?<\/h2>\n\n\n\n<p>To put it simply, the LLC is a legal structure that creates a separate entity for your business. With a Sole Proprietorship, there is no legal distinction between the business and its owner; the LLC creates that distinction, in turn allowing you to keep your personal assets and business assets separate. This also allows you to keep your business liabilities distinct from your personal ones.<\/p>\n\n\n\n<p>What does this mean, exactly? Essentially, it means that if somebody brings a lawsuit against the company, your personal assets (such as a family bank account) are not in jeopardy. Along the same lines, your personal assets are protected from any potential creditors.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What are the Steps for Starting an LLC?<\/h2>\n\n\n\n<p>In addition to personal liability protections, another big advantage to the LLC structure is its administrative ease. Compared to other types of business (including Corporations), getting an LLC started is relatively straightforward. The basic steps include:<\/p>\n\n\n\n<ul>\n<li><strong>Draft Articles of Organization. <\/strong>This very basic document outlines the management structure of your company, detailing things like how many partners are involved. It might also provide thumbnail sketches of the business\u2019 mission and goals.<\/li>\n\n\n\n<li><strong>Register with the state. <\/strong>Articles of Organization are always filed at the state level, along with a nominal filing fee. The cost of registering an LLC varies by state, and can be anywhere from 15 bucks to a couple hundred dollars. (If you\u2019re registering in the Empire State, it may be helpful to review a <a href=\"https:\/\/www.llcuniversity.com\/new-york-llc\/\" target=\"_blank\" rel=\"noopener\">detailed guide to New York LLC<\/a> formation.)<\/li>\n\n\n\n<li><strong>Create an Operating Agreement. <\/strong>It\u2019s often wise to draft a fuller Operating Agreement that goes into specifics about how you\u2019ll allocate profits and managerial responsibilities between different partners.<\/li>\n\n\n\n<li><strong>Get an EIN. <\/strong>You\u2019ll eventually need an employee identification number, which is important for filing taxes and for doing payroll. If you\u2019re a U.S. citizen, you can get one for free from the IRS.<\/li>\n\n\n\n<li><strong>Start a business bank account. <\/strong>To take full advantage of the LLC\u2019s personal liability protections, it\u2019s prudent to start a business bank account, separate from your personal one.<\/li>\n\n\n\n<li><strong>Pay annual fees. <\/strong>Most states will require you to pay an annual fee to maintain your LLC status. Again, the amount varies, but is usually very modest.<\/li>\n\n\n\n<li><strong>File a report. <\/strong>Not every state requires you to file an annual report for your LLC, but even the ones that do ask for just basic information about your company, such as contact information and the name of any partners associated with the business.<\/li>\n\n\n\n<li><strong>Get a Registered Agent. <\/strong>LLCs must have a Registered Agent, basically someone to receive legal and tax documents on the company\u2019s behalf. It\u2019s easy to find good third-party Registered Agent services in any state.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Why LLCs Offer Essential Protection (And Other Benefits)<\/h2>\n\n\n\n<p>There are countless reasons why the LLC is so popular among today\u2019s entrepreneurs, and so crucial to the business landscape more broadly. Consider just a few of the advantages of the LLC format.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Shielding Your from Personal Liability<\/h3>\n\n\n\n<p>It\u2019s worth double- and triple-underlining this point: One of the most essential reasons for choosing the LLC format is that it limits our exposure to legal risk.<\/p>\n\n\n\n<p>Even if the worst-case-scenario arises and you\u2019re served a lawsuit from a customer, business partner, or disgruntled employee, you can rest assured that your family\u2019s house, your kids\u2019 college funds, and the retirement account you have with your spouse are safely off limits. This allows you to move forward, growing your business with relative confidence and peace of mind.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Flexibility with Tax Reporting<\/h3>\n\n\n\n<p>Business owners also choose the LLC structure because it offers tax flexibility.<\/p>\n\n\n\n<p>The default position for an LLC is to report to the IRS on a pass-through basis. In other words, the LLC partners declare profits on their personal tax returns, and pay their normal income tax rate.<\/p>\n\n\n\n<p>However, LLC partners can opt to be taxed as a Corporation, meaning paying the corporate tax rate. For growing companies engaged in advanced tax planning, this flexibility may sometimes be really advantageous.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Additional Credibility for Your Business<\/h3>\n\n\n\n<p>It\u2019s important for any business to convey a sense of professionalism, but this is especially crucial for companies looking to bring on investors, court venture capitalists, or simply make headway with a new clientele.<\/p>\n\n\n\n<p>The LLC structure can confer on any business a certain legitimacy, making it clear that the company is a \u201creal\u201d one, not just a hobby or a side hustle. Specifically, when you have an LLC, you can open a bank account in your business\u2019 name, and you can accept checks made out to the business rather than to you personally. All of this is important for establishing some baseline credibility.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Using Registered Agents<\/h3>\n\n\n\n<p>The use of Registered Agents to receive legal and tax documents is actually a requirement for LLCs. With that said, it can also work to your advantage.<\/p>\n\n\n\n<p>That\u2019s because a Registered Agent helps you to stay organized and on top of paperwork, a tedious administrative task removed from your plate. As a business owner, this frees more of your time for value-adding tasks, such as creative work, strategic planning, and team development.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">More Efficiency with Management<\/h3>\n\n\n\n<p>Similarly, the LLC structure provides some flexibility for how you actually manage the company day-to-day.<\/p>\n\n\n\n<p>This is one area in which the LLC structure compares quite favorably to that of the Corporation. When you choose to run your company as a Corporation, there are a number of rigid requirements you have to comply with, including electing a Board of Directors.<\/p>\n\n\n\n<p>By contrast, LLCs make it possible for business owners to exert a lot of autonomy over how their company runs. As the founder of an LLC, you can choose whether or not to bring on partners, you can allocate managerial responsibilities however you want, you can even hire an external management team to handle day-to-day stuff on your behalf. This flexibility can be especially valuable for companies that are <a href=\"https:\/\/www.smekdigital.com\/follow-these-useful-guidelines-and-promote-your-business\/\">looking for scalability<\/a>, and may require a pivot or evolution down the line.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Easier Access to Funding<\/h3>\n\n\n\n<p>You may eventually decide you want to bring some investors on board to help fund your business\u2019 growth. While LLCs cannot issue shares to stockholders, they can get business loans and lines of credit, something that\u2019s not always an option for Sole Proprietorships.&nbsp;<\/p>\n\n\n\n<p>Additionally, the credibility that comes from being an LLC may make it easier to entice venture capitalists to come on board, providing the financial resources needed for sustained business growth.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Enhanced Privacy and Confidentiality<\/h3>\n\n\n\n<p>Many business owners crave privacy, something that LLCs allow and Corporations really don\u2019t. That\u2019s because Corporations have rigorous reporting requirements, often making it necessary to reveal certain information about your company to the general public.<\/p>\n\n\n\n<p>That\u2019s not the case with LLCs. While specific reporting requirements can vary by state, most states do not mandate a lot of personal information to be revealed, not a lot of financial data about your LLC.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Smoother Succession Planning<\/h3>\n\n\n\n<p>Another reason to choose the LLC format is that it makes succession planning fairly easy. Specifically, you can include provisions in your Operating Agreement to pass along the company via inheritance or gift.<\/p>\n\n\n\n<p>By contrast, this type of easy transference is really not an option for a Sole Proprietorship, where you <em>are <\/em>the business, legally speaking.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Choose the LLC Structure for Business Flexibility and Success<\/h2>\n\n\n\n<p>As you consider your best available options to limit your risk and to protect yourself (and your family) from legal vulnerability, one of the most important decisions you\u2019ll make is which legal structure to choose for your company. Generally speaking, the LLC is the best option for personal protection, and thus one of the most significant legal entities shaping the business world.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Author Bio<\/h2>\n\n\n\n<p><img loading=\"lazy\" decoding=\"async\" width=\"202\" height=\"202\" src=\"https:\/\/lh4.googleusercontent.com\/0JGj9XadQnYQDZiuNHrzP7PBG_m3SR25Fhs-nBS-ne3QpGkgdVAR-ricpqFtSWmHe-wtaviz-B6ztDEBGC1Qr5ERT5JqQXjtaNJXCUI2TXmIZGiDC6X9ggGdebVSEJ-InaB26gfVqsfy7MYA2WLYLR0\" alt=\"\"><\/p>\n\n\n\n<p>Amanda E. Clark&nbsp;is a contributing writer to <a href=\"https:\/\/www.llcuniversity.com\/\" target=\"_blank\" rel=\"noopener\">LLC University<\/a>. She is a graduate of Eastern Michigan University and holds degrees in Journalism, Political Science, and English. She became a professional writer in 2008 and has led marketing and advertising initiatives for several Fortune 500 companies. She has appeared as a subject matter expert on panels about content and social media marketing. She regularly leads seminars and training sessions on trends and tactics in professional writing.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>While entrepreneurs can\u2019t totally avoid risk, they can take strategic actions to mitigate it. You can do so by choosing a Limited Liability Company.<\/p>\n","protected":false},"author":3,"featured_media":9407,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[37,106],"tags":[],"_links":{"self":[{"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/posts\/9406"}],"collection":[{"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/comments?post=9406"}],"version-history":[{"count":2,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/posts\/9406\/revisions"}],"predecessor-version":[{"id":9409,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/posts\/9406\/revisions\/9409"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/media\/9407"}],"wp:attachment":[{"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/media?parent=9406"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/categories?post=9406"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.smekdigital.com\/wp-json\/wp\/v2\/tags?post=9406"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}