Too many business owners rush into registering their business without considering the significant long-term implications of initial critical choices, some of which can be fatal. The entity type you choose at the time of officially forming your company could have long term consequences.
While an LLC is a common structure, there are other options available, and we want to make sure you avoid unwanted surprises …
An LLC is like a Birth Certificate for Your Business
LLC stands for Limited Liability Company, and it’s one option for creating your business as a legal entity. You register for an LLC with the Secretary of State (for your state, not the federal government), and it’s kind of like getting a birth certificate … but for your company.
Having an LLC Helps Protect You from Greedy People (but it’s only the first step)
Registering your business creates a legal entity that is separate from you as an individual person so that your personal assets are protected from liability of your business activities. In simpler language, it makes it harder for injured parties (or their lawyers) to come after your home or personal investments when seeking damages in a lawsuit against your company. But having an LLC isn’t enough … more on that as a major misconception in a moment.
What Are the Alternatives?
You could form your business as a corporation (for profit or nonprofit). You’ve probably heard of S-Corp or C-Corp. You could also form as a Partnership.
We can’t say one structure is the best across the board. It’s more about which structure is right for your situation. Learn more about how to choose with Brio’s course on Business Structure and Entity Formation.
Why Are LLCs So Popular?
A lot of business owners like LLCs because they are more flexible, relatively simple, generally easy to set up, and not very expensive.
Here’s What You May Not Know About LLCs:
- People often get confused between corporate structure and tax designation. It is possible to be formed as an LLC but taxed as an S-Corp.
- People think that just because they have an LLC they are protected. Forming an LLC is only the first step. There are other requirements. Our course on How to Protect Your Business can help you avoid significant vulnerabilities.
- The big secret about LLCs that most people don’t know is using only one isn’t always the best way to run your business. The big corps know this, and that’s why they form multiple entities. We let you in on this secret so you can know when you need to do the same in our course on Business Structure and Entity Formation.
- People mistakenly assume you always file your business in your state of residence. While that’s often the case, there may be good reasons to form your business in another state. It’s not a coincidence that Delaware and Wyoming are popular states for business formation. Our courses are full of pro-tips like these!
Forming Your LLC (or other entity type) Is Just the Beginning
You’ll also need to…
- File with the IRS to get an Employer Identification Number (EIN), which is like a social security number for your business).
- Get a business license from your local government agency. Certain businesses also require specific permits to operate.
- Set up financial structures for your business. You can learn more with Brio’s course on Accounting Made Painless.
- Run your business completely separate from your personal affairs. Brio’s course on How to Protect Your Business helps you fulfill this so you create and solidify a wall between your business and your personal wealth.
As a business owner, you have to be a jack-of-all-trades. While it’s impossible to be an expert in every area of your business, you don’t want to shoot from the hip either. Brio has courses that help you handle everything from Money to Marketing to Management. Check out all our courses so you can avoid rookie mistakes that cost a lot to fix!