Those new to starting or running a business may not understand how vital it is to choose the proper legal structure. The correct choice can help you grow your operations without posing unreasonable legal and financial risks.
The basic choices for a business legal structure include:
- Limited liability company (LLC)
- Sole proprietorship
- Corporation
- Partnership
There is much to learn about these structures, but this post will focus solely on the LLC. You will discover why it is so popular among new business owners by learning about the pros and cons of the LLC.
Advantages of forming an LLC
As the name suggests, an LLC removes your individual liability for the debts your business owes. In other words, creditors cannot take your personal assets to recover money owed to them by your company. Four more advantages include the following.
- No double taxation
- Easy to start and maintain
- Fewer regulations to follow
- Management structure flexibility
Generally speaking, opening and operating an LLC offers more overall flexibility than other business structures.
LLCs have a few drawbacks
Fortunately, there are not many disadvantages associated with LLCs. However, one potential downside is the inability to issue stock shares as you can with other business structures. Three other possible shortcomings include the following:
- You must pay self-employment taxes.
- Usually harder to attract interest from investors.
- Potential difficulty holding on to business profits
There is also a risk of losing your liability protections in certain situations, which could jeopardize your personal assets. For example, if fraudulent operating practices cause other parties to experience losses, a judge may order you to cover their damages.
Continue familiarizing yourself with Arizona business laws to ensure that your company has its best chance for success. Experienced legal guidance can help.