When organizing as an LLC makes sense

In Business Organizations by Coolidge Wall

When deciding how to organize your business, one big consideration will likely be whether you need to protect yourself from personal liability, in case your business ever gets sued. On the other hand, you will likely want to keep other aspects of your business as simple as possible.

One good possible option for many Ohio businesses is to organize as a limited liability corporation, also known as “LLC.” As the name implies, an LLC protects its owners from personal liability for any debts, judgments or lawsuits against the business. This may protect the owners from serious financial peril someday.

In addition, LLCs qualify for pass-through taxation. This works by treating the LLC’s profits and losses as though they pass directly to the owners. This means that the owners pay the taxes. So, if there are two partners who each collected $50,000 in profits last year, they are responsible for paying taxes on that income. Many LLC owners find this to be a simpler way to deal with taxation.

There are some potential drawbacks. Forming an LLC often is more expensive and complicated that organizing as a sole proprietorship or regular partnership. Whether or not it makes sense for your business likely depends on the nature of what you will be doing. Will your business be engaged in potentially dangerous activity that makes lawsuits a realistic possibility? Do you anticipate creating a lot of debt? Then an LLC may be a good idea. If not, you should probably consider other options.