As you prepare to enter the ranks of Texas business owners, you’re no doubt working to smooth out many details during the startup phase of your company. One of the top priorities during this phase is to choose a business structure, which has multiple implications, including whether your business will have limited or unlimited liability. The three basic entities for a small business are: sole proprietorship, partnership or LLC (Limited Liability Company).
There are several things to keep in mind when trying to determine whether an LLC is the best fit for your business. Of the three structures, it’s typically the most complex, which is why it’s best to learn as much as you can ahead of time, so that you can make informed decisions and protect your business, as well as personal, assets, as much as possible.
An LLC provides benefits similar to multiple other business structures
If you choose to operate under an LLC, you gain several benefits that also exist within partnerships and corporations. When launching a business, you, of course, are hoping for the best. However, it’s also important to consider the possibility that your company may face a financial crisis or wind up in default on a loan. The LLC business structure can protect your personal assets in such circumstances.
Under a sole proprietorship, for instance, your home, vehicle or other personal assets may be seized, in order to pay a debt that your business owes. If, however, you have registered your company as an LLC, then your business assets and personal assets are separate. The “limited liability” in the title refers to your personal liability being limited, meaning that your personal assets cannot be touched to satisfy a debt that your business has incurred.
Consider the tax implications of an LLC
Another thing to think about when discerning whether to register your business as an LLC is the implications it will have on your tax returns. For tax purposes, an LLC is considered “self-employment,” which means that you must pay self-employment taxes for programs, such as Social Security and Medicare.
Who benefits the most from an LLC business structure?
It’s a good idea to discuss your business plans with someone who is well-versed in Texas business law. Such a person can help you determine if an LLC is a good fit for your company. A key factor to consider is how high of a risk your business carries. If it’s moderate to high, an LLC might be the best option for you, especially because it’s the option that is most helpful to protect your personal assets if your business runs into trouble with debt.
Your tax rate with an LLC is also likely to be much lower than it might be under a corporate business structure. As a corporation, you would be required to pay taxes on your profits, which you do not have to do under an LLC. Launching a business is an exciting yet challenging time in life, which is why it’s helpful to tap into local resources for support to minimize stress and to make sure the actions you take help you optimize asset protection for your business and personal finances.