Understanding LLCs - The Ups And Downs Of Incorporating

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Understanding LLCs: The Pros and Cons of Incorporating


Introduction


Starting an internet business means forming a legal entity, typically a sole proprietorship, LLC, or corporation. While a sole proprietorship is automatic, it offers minimal protection and tax benefits. Let's explore the other options.

Limited Liability Companies (LLCs)


Advantages

LLCs protect your personal assets in business-related lawsuits. This is crucial if you deal with high-cost or risky products, such as heavy machinery. With an LLC, personal assets like your home and cars are safe.

Disadvantages

Owners cannot draw a salary. Instead, you take a share of profits, dividing any remaining funds after expenses. Remember to set aside 30-40% of your gross income for quarterly estimated taxes to avoid issues during tax season.

Corporations


Advantages

Corporations may be ideal for businesses with several employees and benefit programs. According to attorney Cliff Ennico, corporations offer more tax benefits and creative options for benefits than LLCs.

Disadvantages

Forming a corporation is significantly more expensive than an LLC, often costing double or more.

Starting Your Business


Online services like LegalZoom and MyCorporation can help establish your business. However, ensure they guide you through every necessary step to avoid issues like audits due to incomplete registration.

Alternatively, hiring an attorney, though more costly, guarantees a thorough setup as they are liable for any oversights. Opt for a flat fee covering all costs rather than hourly rates.

Conclusion


Establishing a business involves legal considerations, but it's manageable. Choose the structure that offers the best tax benefits and legal protection for your needs. Getting set up correctly ensures smooth operations and peace of mind.

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