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Should you register your first company as an LLC?

On Behalf of | Oct 22, 2020 | Business Formation & Planning

When you start a business for the first time, you may not give much thought to how you register your company. When there is so much to do and learn, you might go for the most straightforward option. Yet, choosing a sole proprietorship could leave you personally responsible if things do not work out. Consider a limited liability company (LLC) instead.

What are the advantages to a limited liability company? 

LLCs provide numerous advantages compared to sole proprietorships. Here are some:

  • Security: You are likely to make many errors as a first-time business owner. They could result in business litigation. Registering your company as an LLC distinguishes between you as a business owner and the company. If someone wants to take action, they can only do so against the company. If you are a sole proprietor, they could seek to claim against your personal property.
  • Tax benefits: As an LLC, you will pay what is known as pass-through taxation. It means you only pay tax on profits you receive as owner. As a sole proprietor, you would pay tax twice: once as the company and then as the person receiving profits on the company.
  • Professionalism: Registering your company as an LLC can appear more professional than maintaining it as a sole proprietorship. It may be necessary to get business loans. It could also help you gain clients.

Creating an LLC will cost you more time and effort initially than setting up as a sole proprietorship. However, if you are serious about starting a business with a future, it can make a lot of sense and be more cost-effective in the long term.