Sole Proprietorship or LLC – How to go about Small Business Formation
There is no time like the present to start your business. With a favorable tax environment and technological advances that act to reduce barriers to entry, working for yourself and calling the shots has never seemed more attainable. For many, the ideas come natural, but every other step in the process is foreign. There are filings, meetings, fees, and an endless list of other associated regulatory measures that keep many from pursuing their dreams. However, with sound, affordable legal guidance anyone can get their ideas off the ground and chase their passions. (Think of how much more successful the Pet Rock would have been with the Internet.)
Formation is perhaps the first major hurdle for any new business. Each designation recognized by the Commonwealth comes with a variety of benefits and potential issues. Making the right determination early will set the stage for long-term success. The following discussion is aimed at clarifying two of the most popular and practical formation solutions.
Sole Proprietorship – This option is the least costly if going it alone. There are less regulatory hurdles, as the government recognizes you as the business, so there is no need to maintain separate financial accounts and accounting methods. The same holds true for taxes, as you will get taxed as self-employed. Potential issues for owners in this structure are sole liability for all business debts meaning you are subject to personal lawsuits for business related activities.
LLC – Limited Liability Company (LLC) is a structure that protects the individual manager/owners/operators from most personal liability for debts and lawsuits brought against the business. An LLC is also considered a pass through entity for tax purposes, depending on the elections during formation, which can shift some of the tax burdens. There are potential significant drawbacks related to filing fees to form an LLC with the state. Once formed there are meeting requirements and ongoing regulatory fees, as well as maintaining operations as a going concern under state law. One major requirement is the separation of banking accounts and other business records. Failing to follow through on these requirements could cost the business at tax time, which is a major setback in the near term and potentially the long term.
While the above addresses a laundry list of benefits and potential issues, it is in no way comprehensive. At The Skeen Firm, we are committed to answering all of your business questions in depth and ensuring your business journey starts with solid footing.
Call us today, at 724-550-6970, or email at info@theskeenfirm.comto schedule a consultation to discuss affordable solutions to start your business and pursue your dreams.
*Disclaimer: The advice provided is for informational purposes and is not intended as legal advice. It should not be relied on, nor construed as creating an attorney-client relationship.