As a business owner in Texas, one of the most difficult decisions you will face is the choice of the business structure. Setting up an LLC (limited liability company) is an effective option for many businesses as it provides legal and financial benefits. Let’s learn about the top 5 advantages of establishing an LLC for your growing company in Texas.
- Liability protection
An LLC has the biggest advantage of that it prevents your personal assets from business debts and legal claims. If as a sole proprietor or general partnership you are the sole person responsible for any liabilities or lawsuits of the company. LLC ensures that if the business is in financial problems or legal troubles, your personal assets such as your home, car, and savings are protected. Your liability is limited to only the investment you made in the company. This can be an assuring factor for entrepreneurs.
- Flexible Operations
One of the LLC’s major benefits is flexibility in managing your business. It grants you the advantage of liability protection like S-Corp and C-Corp however, it offers the pass through taxation like the sole proprietor. That’s it, no corporate tax – your profits are passed through to your personal income tax. LLCs, moreover, offer management models that are more adaptive than S-Corp. The fund can be structured such that there are many owners and members that can be passive investors and they don’t have to be present for daily operations.
- Gain Tax Advantages
Unlike the LLCs which are considered pass-through entities under the federal tax laws, they still offer some tax preferential advantages. For example, you can claim all business expenses that are needed like rent, utilities, supplies, equipment, and employee costs before paying tax on income collected. If you are a member of an LLC, your health insurance premiums might be classified as business expenses and therefore deductible. Also, as your business expands, you can have a tax deduction for intangible asset depreciation expenses. Ask the tax-professional to show you how to maximize your deductions. Listen to the given audio and reproduce the same sentence with the given word.
- Increased Business Credibility
The inclusion of LLC in the formation of your business will be the one way of making your business to be considered as a legitimate and separate entity from your personal life. It facilitates you to open bank accounts for your business and enables you to avail business credit facilities with business financing, loans or lines of credit depending on your LLC’s credit rating. Lending companies are more likely to have LLCs and corporations taken seriously while the sole proprietorship are given lesser attention. Moreover, the establishment of your own business structure makes your business look more legitimate and robust to possible clients, partners or investors.
- Plan for Growth and Exit Strategies
Forming an LLC will give you a good foundation to build on when it comes to monitoring and planning your business for the future. The company would be able to get ready for hiring full time employees and taking care of payroll taxes and benefits correctly. An LLC just as well makes it easy to have partner investors and outsiders that can be owners in case you do need an extra capital to channel the growth of your business. Besides, after a while you can also divest yourself or sell off part or the whole of your LLC. The framework implemented by LLC allows for the transitioning or exit plan to be executed in a smoother way when it is the time.
In conclusion, it is a rational move for the majority of small business owners to set up their company as an LLC from a financial, legal and operational point of view. It handles operations and at the same time, it is a shield to your personal assets to build in the long run. Consider engaging with legal and accounting experts to be informed whether LLC is the legal entity that is right for your specific situation.