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There are benefits of forming an LLC

Are you interested in starting a business? Do you have a great idea that you can't wait to share with the world?

Before you get too far ahead of yourself it's a good idea to get all your ducks in a row in regard to the legal structure of your company.

While you have many options, an LLC may be perfect for you. This is the preferred business structure of many entrepreneurs, thanks to the following benefits:

  • It limits your personal liability, which will give you peace of mind as you start and run your business
  • Flexible management structure, which will come in handy in the future as your company shifts directions (which is sure to happen every now and again)
  • Pass through taxation, meaning that profits are distributed to members, who are then taxed at the personal level
  • An LLC can be used for many reasons, such as for holding appreciating assets like real estate and intellectual property

These are the types of benefits you need to think about when deciding if an LLC is the right structure for your business.

Conversely, you don't want to opt for an LLC until you first learn more about potential drawbacks. These include:

  • In the state of California, you'll pay extra fees for operating your business as an LLC
  • With a single member LLC you may not get all the asset protection you're looking for
  • Transferability restrictions can come into play, such as if you're selling your company

You need to take these potential drawbacks into consideration, knowing that they could impact you and your company now and in the future. When you compare these to the benefits above, it'll become more clear as to what you should do next.

There is a lot to think about when starting a company, with choosing the right business structure at the top of your to-do list. If you make the right decision it will benefit you for many years to come. Conversely, if you make a mistake, it could cause more harm than good.

Take the time to compare all your options, the legalities associated with each, and the pros and cons for an entrepreneur like yourself.

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