Missouri law requires all businesses to have legally admissible structures for purposes of taxation and personal liability. While there are generally four different types, most small business owners prefer LLCs. However, before settling on it, it is important to ascertain that it is the right fit for you based on your goals and the services or products that you provide.
Understanding an LLC
A limited liability company (LLC) is a business entity that protects your personal assets from being held liable in the event that your business is sued. It combines the flexibility of a sole proprietorship or partnership with the limited liability features of a corporation. Simply put, it limits an owner’s personal liability for debts and court judgments arising from business dealings.
Reasons why people prefer LLCs
Personal liability protection is one of the main reasons why many entrepreneurs choose to form an LLC for their businesses. Creditors can go after the assets of the LLC, but they cannot come after your personal belongings like they could if you were running a sole proprietorship.
Another reason that people like LLCs is that they are relatively easy and inexpensive to set up unlike corporations, which have strict rules and regulations. LLCs can be formed by filing paperwork with your secretary of state’s office and paying a filing fee. In addition, LLCs do not have to hold annual meetings or elect a board of directors as corporations do. This makes them much simpler to operate than other business structures.
Lastly, LLCs offer great tax benefits. You can choose to have your LLC taxed as a sole proprietorship, partnership or corporation. This flexibility allows owners to find the tax structure that best suits their needs. Moreover, LLC owners avoid the double taxation that is sometimes seen with corporations.
Disadvantages of forming an LLC
There are some drawbacks to this business formation, however. One is that LLCs are not well-suited for businesses that want to raise venture capital or go public. They also cost more to form when compared to sole proprietorships and general partnerships.
Deciding whether an LLC is the right business formation for you comes down to how the pros and cons would impact your overall goals. This decision is critical because finding the perfect structure has a direct impact on the financial success of your business.