3 benefits that entrepreneurs derive from creating LLCs

On Behalf of | Dec 22, 2022 | Business Law |

Starting a new business in California always comes with risk, which is one reason why people start formal business entities. They want to protect themselves from legal liability and reduce the taxes that they may have to pay if the business proves successful.

People in various different industries may have different business concepts and models for how their company will operate. Whether you want to start a subscription retail business that sends out body care products to consumers every month or you intend to open your own automotive repair shop, you will need to create a legal business entity to protect yourself as an entrepreneur.

Many people starting a new company will opt for an limited liability corporation (LLC) as the structure for their company. What benefits do LLCs offer to those starting a new business?

  1. Streamlined control of the company

In a partnership or a different corporation, the owner of a business may have to get permission from other parties before purchasing resources or signing a new contract for a lucrative project. When you create an LLC, you can largely operate the company like a sole proprietorship without the risk that comes from being the only, direct owner of a business.

  1. Income tax benefits

Businesses and individuals are subject to different tax rules. Entrepreneurs typically benefit from making use of write-offs and other individual tax benefits that may not be available to businesses. When you earn money as the owner and operator of an LLC, you can claim that money as personal income and apply standard income tax deductions to those funds.

  1. Personal liability protection

If a business fails, the person running it could end up responsible for its remaining debts after it closes down. If some kind of dramatic product or service failure occurs and people bring an expensive lawsuit against the business, your personal assets could be at risk if you don’t separate yourself legally and financially from the company. Starting an LLC helps to shield your assets and your future income from debts or judgment related to the business.

Entrepreneurs need to think carefully about their business plan and what might happen both if the company were to succeed or to fail when choosing the best way to start and structure their company.

Starting your business using the right legal form will help put you on a path to success or at least protect you from the worst risks if the company fails.

 

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The State Bar of California
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