Let’s say you’re a timber-cutter operating independently in the Oregon woods. You get your contracts from large timber companies or the U.S. Government, then turn around and hire the machinery and manpower to get the job done. For work you have a few trucks and some light gear. Back home, you’ve got a mortgage, two car payments and a few acres on which you run a hobby farm. It’s a good life.
Now ask yourself this: If something goes wrong, would you rather you lost your business assets … or all your assets? Sadly, this is a question too few business owners actually ask themselves, and in so forgetting, they set themselves up for potentially devastating consequences later on.
So what is an LLC, exactly? The acronym stands for Limited Liability Company, and the main benefit of this type of entity is right there in the name: limited liability. When you form an LLC, the company itself becomes liable for whatever happens on the company’s time. That means if a piece of equipment malfunctions and someone gets injured, or you fail to follow a regulation stipulated in your contract, the consequences are applied only to the LLC rather than to you as well.
Those consequences might include damages from a lawsuit, forfeited or repossessed equipment, liens and so forth. While this may put the company out of business, though, you’ll still be fine.
What happens if you don’t form an LLC and something goes wrong? Then the damaged parties can come after you and everything you own. Say goodbye to the house, cars and hobby farm, not to mention any bank accounts or other assets you might have … because so long as you have money to pay, they are all potentially forfeit.
Plus, an LLC comes with a significant tax advantage, which is the fact that it is not taxed as a corporation. Rather, each member of the LLC is taxed at the individual level on their federal tax return. The rates are significantly lower than for corporations, which are effectively taxed double: once at the corporate level, once on the personal level. You can save beaucoup bucks by opting for an LLC, at least at the federal level (state may be different).
In the end, the choice is clear: Most small businesses that can form an LLC should. If you’d like to learn more about your options, speak to a certified professional today.