Why Starting an LLC is a Logical Decision for Business Owners in 2023

Around 35% of all small businesses in the United States are limited liability companies. Let’s take a look at some of the biggest reasons why you may want to register your company as a LLC.

1.Ensuring Business Continuity

In times of fluctuation and unpredictability, business owners have to find ways to ensure that their business will continue to be operational in the event of sudden change. Let’s say you suddenly have to change hands in terms of leadership. Because an LLC is considered a separate entity from its owners, this won’t necessarily affect your daily operations and legal compliance. 

It’s also helpful if you end up having to restructure your organization. Whether it’s a minor or major change, you will have a smoother time in any transitions and succession planning because of the guidelines that come with formed LLCs. It’s simple to understand how to start an LLC, especially since there are now many LLC services that expedite the process. 

2. Protecting Your Personal Assets

When your business is running as an LLC, you get limited personal liability as the owner. This means that any debts and legal or financial obligations that are under the responsibility of your company are considered separate from you as an individual. There is also a clear line between the assets that belong to the company versus the assets that belong to you personally. As long as you maintain separate bank accounts and records for your business and personal affairs, you don’t have to worry about creditors or banks seizing assets outside of the business. 

Naturally, you’ll want to try to beat inflation and prevent your business from getting in trouble in the first place. Taking a page from Bill Gates’ playbook can help you find ways to keep your cash flow going, but it’s still a good idea to register as an LLC for good measure. This way, your home, personal savings, vehicle, and any other personal assets will be safe even in the event that your business faces bankruptcy or legal action. 

3. Mitigating Risks

One of the reasons why LLCs have become so popular in the first place is because of their risk mitigation. Debts, lawsuits, and any disputes that may be accrued by the company are not marked toward the owner because the business is considered its own entity. Of course, it’s also important to note that the protections included in this will no longer apply if you are found to be directly involved in any negligence or wrongful acts. So, as long as you are not committing any illegal or fraudulent activities, you are pretty much safe on an individual level. 

If you do end up having to dissolve the business, having it as an LLC also helps you avoid personal liabilities and minimizes the chance of ownership disputes. As much as it’s not a thought you want to entertain, even major retailers have started shutting down thousands of stores across the United States in 2023. With an LLC, risks to your finances, reputation, and legal standing are minimized quite significantly. 

4. Creating More Financial Flexibility

An LLC has better federal income tax flexibility than other forms of business and also has pass-through taxation. The latter is a great help during times of economic turmoil as it means you only get taxed once. In terms of dealing with the IRS, your business is treated as a sole proprietorship if it is a single-member LLC. For those with more than one owner, you are taxed like a partnership. 

LLCs are also allowed to file for taxation as an S or C corporation. These will have their own benefits and drawbacks, but it’s good to have the option depending on your own needs. Money management is one of the most important steps in learning to manage your small business finances, and having inherent flexibility in your business allows you to more effectively find a system that works for you.