One of the first decisions you have to make when you start a business is what type of structure it’s going to use. For some small business owners, a sole proprietorship is sufficient. In other cases, a bit more protection is needed. Those business owners may opt to form a limited liability company.
An LLC can have one or more owners. It offers more protections for the owners and has many other benefits. An LLC is a bit more complex than a sole proprietorship to establish; however, it’s less complicated than a corporation.
You must file legal documents to establish an LLC in Illinois. Once you do, you’ll enjoy some specific benefits that you don’t have if you stick to a sole proprietorship for the company.
Creditor protections for the owner
LLCs protect owners from creditor claims made against the business. It divides the business’ assets from the owner’s assets. If someone files a lawsuit against an LLC, they won’t be able to touch the owner’s personal assets, including real estate, bank accounts, retirement funds or investments. The protection for the owner’s assets extends to bankruptcy if the business has to file for bankruptcy.
Tax considerations and benefits
One of the major benefits of an LLC is that the company doesn’t have to file taxes. Instead, the company’s taxes go through the owner’s personal income tax return. This benefit is especially important for small business owners because it prevents them from being taxed twice on the same profits. When a corporation files business taxes, the profits are taxed. The corporation pays taxes on profits and then the owner has to pay taxes on the income the corporation pays to them. This doesn’t happen in an LLC, so the money is only taxed once.
Regardless of the type of business you want to start, you should ensure that you fully understand the options you have for its structure. Working with someone familiar with small business matters is beneficial because you can ensure you have protections in place for the company.