Venturing into a business requires knowledge of the trade and understanding of the laws on a local, state, and federal level. There are many reasons for small business owners like you to look at the firm’s legal business entities. The need for capital and changing laws are just two of the many factors which require you to carefully assess which legal structures best meet your needs.
This write-up will give you the information you need to help you decide which is the best business entity for you: is it a sole proprietorship, a partnership, or a limited liability company (LLC)? If you choose sole proprietorship or partnership, what are the requirements you need to comply with? If you prefer the last one, then how much does the Illinois LLC cost, if you’re planning to form one in that state?
Before you choose the best structure for your business, let us describe each format first:
A sole proprietorship is easy to form and gives you full control of your business. If your business is a low-risk one, or if you want to test your business idea before establishing a more formal business, a sole proprietorship can be a good choice for you. A sole proprietorship doesn’t produce a separate business structure, which means that your business liabilities and assets are also your personal assets and liabilities. You can be held personally liable for your business’ obligations and debts.
It can be a good pick for businesses with multiple owners as well as groups who wish to test their idea before forming a more formal business.
The two common types of partnerships are limited liability partnerships (LLPs) and limited partnerships (LPs). LPs have only one main partner who has unlimited liability. All other partners have limited liability and tend to have limited control over the business, too. On the other hand, an LLP is like a limited partnership but gives every owner limited liability.
Limited Liability Company (LLC)
If you want to enjoy the benefits of both partnership and corporation, setting up an LLC might be the best option for you. Forming an LLC protects you from personal liability in most instances. Your personal assets, including your bank accounts, house and lot, and vehicle, will not be at risk in the event your LLC encounters lawsuits or goes bankrupt.
Also, losses and profits can get passed through to your personal income without encountering corporate taxes. However, if you are an LLC member, you’re considered self-employed and must pay self-employment tax contributions. An LLC is a top option for medium-risk businesses, owners who want to spend a lower tax rate, and owners with significant personal assets they want to be protected.
Choosing a business structure should not be taken lightly. You should not make a choice based on what somebody else has done. Consider the unique needs of your business, know if you can afford the Illinois LLC cost or the sole proprietorship and partnership fees, and seek expert advice, before settling on a particular business entity.