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Startup legalities: 3 Reasons to establish a business entity

If you are in the process of starting a small business, congratulations! This can be an exciting and rewarding time. With that said, there are some technicalities you need to consider as you move forward with this endeavor.

In the United States, there are four kinds of legal structures a new business can fall under: proprietorships, partnerships, limited liability companies and corporations. While different entrepreneurs choose different structures for various reasons, there are some notable benefits of establishing an LLC or corporation.

1. Liability protection

Although sole proprietorships and partnerships can be inexpensive and relatively straightforward, these kinds of business structures also come with more legal risks. With LLCs and corporations, the law separates business owners and their companies.

2. Preferred tax treatment

Another benefit of establishing a business entity is the tax flexibility that can come with doing so. In particular, the law considers corporations and business owners to be different taxpayers. Although LLCs can still face taxes similar to those of sole proprietorships, there is also the option for some LLCs to claim corporation benefits for taxation purposes.

3. Management flexibility

In addition to tax flexibility, business owners who choose to establish LLCs have the ability to choose how they manage their companies. If you are still unsure whether you want to handle all of the day-to-day operations yourself or if you want to hire employees to help you, setting up an LLC can be a great option because you have the choice to do either.

Opening a small business can be one of the most life-changing moves a person makes. By carefully considering how you want to set up your company’s legal structure, you will be off to a great start.