Starting a business is always difficult, and with good reason. That’s because if it were easy, no one with a sound mind and enough money would choose to work as an employee anymore, especially if the alternative is to become their own boss. So, choosing to pursue entrepreneurship is both a challenge and a feat that not everyone has the guts to take.
But aside from it being challenging, starting a business is difficult because it has a lot of complex matters that you’ll need to comprehend. For instance, there’s the hurdle of knowing what kind of business entity you’re going with. Should you choose to become an LLC, LLP, or an inc.? How do these even differ from one another?
If you don’t know where to begin, the best solution would be to consult a commercial law attorney who can guide you throughout the legal process. A professional can help you understand what you need to know and how your option will be appropriate for your business. But before you consult an attorney, here’s some information on the different business entities you should know about:
Limited Liability Company (LLC)
In a nutshell, a limited liability company (LLC) is a business entity with one or more members that own it. Because the LLC is a separate entity from its owners, it can own a bank account, business properties, or even have its own tax identification number. This means that it would no longer be tied to the ones that own the LLC.
LLCs can be created when the business owner files the necessary paperwork with their secretary of state. The process can include submitting the application for incorporation, paying the associated fees, and writing up an agreement of its terms of operation.
If you were to run an LLC with several other members, you’ll all be protected against personal liabilities. This means that if the LLC owes a debt or is being sued, the members won’t personally be held liable for the dues of the LLC. Through this, all the personal assets of the members, such as their homes, cars, and personal bank accounts, will be protected.
Limited Liability Partnership (LLP)
Similar to an LLC, a limited liability partnership (LLP) is a standalone business entity that no longer requires the presence of its owner to exist. However, it’s different because the LLP is simply a general partnership with limited liability for one or more partners. And the LLP also needs to be registered with the state.
As for the LLP’s liability protection, the partners may only be protected from one another’s negligent actions. However, they will still be held liable for the debts and obligations of their business. Unlike in LLCs where all member’s assets will be protected, the LLP entity has no such undertaking.
Additionally, the implications for LLPs vary from state to state. Some states may require at least one partner to carry the burden of unlimited liability, while the other partners have limited liability. It’s also possible for partners of the LLP to enjoy limited liability, such as in LLCs, but this is highly dependent on the state where the paperwork was filed.
Corporation (Inc. or Corp.)
Unlike LLCs or LLPs, a corporation often has shareholders who own stocks within the company. These corporate shares give shareholders the power to make influential decisions that will affect the operations and the future of the company. That’s why companies that seek the support of external investors or are planning to offer public stocks tend to incorporate their businesses.
When it comes to taxation, corporations have two options: 1) they can be taxed as a C corporation, which means the shareholders will undergo double taxation, or 2) they can be taxed as an S corporation, which means that they won’t have to pay corporate income tax, but the shareholder’s profit shares will get taxed.
Corporations are also more rigid when it comes to management structures because they must have a board of directors. This board will be in charge of setting stringent policies and continually enforcing them throughout the company. In large corporations, directors, shareholders, and officers will usually have their own set of responsibilities that are clearly defined in their bylaws.
Trying to comprehend the key differences between these business entities may be a cause for headaches, but it can also save you time and money in the long run. This is because changing your business entity later on will cost you more time and money, especially since you’ll have to file a new set of paperwork.
So, the responsible thing to do is get this matter out of the way before you move forward to creating your digital marketing strategies and launching your social media campaigns. Over time, you’ll realize that addressing this matter from the get-go has made it much easier for you to focus on achieving your business goals.