#1 Liability protection
The most important feature of forming an LLC or corporation is the liability protection owners receive. As your business grows, so does the amount of legal risks you take on, so liability protection becomes even more important. If your business faces legal trouble or debts and is not set up as an LLC or corporation, your personal assets, like your home, personal bank accounts, and more, can be reached by creditors. After setting up your business as a separate entity, creditors may only be able to go after the assets owned by the business.
Setting up an LLC or corporation is simple with Rocket Lawyer. Answer a few questions, and the business services team at Rocket Lawyer can help your business Start Up Confidently™ to get you and your assets protected.
#2 Tax benefits and flexibility
Depending on where a business is in its journey, there may be tax benefits to forming an LLC or corporation. LLCs and corporations have more options when it comes to taxes than sole proprietorships and partnerships. An LLC, for instance, allows taxes to be paid as pass-through taxation on the business owner’s personal taxes. If you’re still in the planning phases, a Rocket Lawyer business services specialist can help you assess what type of entity might be right for your business.
#3 Easier access to capital
In order to grow, businesses need capital. Your Business Plan may include details about how your business can secure funding, and setting up an LLC or corporation may be a good idea to include as part of your plan.
Simply put, financial institutions and private investors do not want to invest in a company that is not properly set up. Sole proprietorships and partnerships are risky investments because they lack the formal business structure and liability protection of an LLC or corporation. If a business does not have a formal structure, it leaves both you and your investors vulnerable to legal claims and creditors.
Registering your business shows investors and banks that you can take care of the basics and that your business is structured for success.
#4 Professional image and credibility
A formal business structure shows stability and commitment. Both of those are good things for customers, partners, and competitors. Having a registered business entity enhances your business’s credibility and makes it a more attractive place for employees to work.
An LLC or corporation boosts your reputation and demonstrates that your business is in it for the long haul. This increases the confidence of your customers, partners and employees that they can rely on your business to be there in the future.
#5 Separation of finances
Forming a separate entity requires separating personal and business finances. While this may sound like more work, during tax season, it saves you time and headaches. Nothing is messier than a bank account full of commingled funds (i.e. when business and personal funds are handled in the same bank account). There are big legal risks as well. Commingling can lead to losing the liability protection you get by registering a separate legal entity like an LLC or corporation.
When you form an LLC or corporation, you can establish separate bank and credit accounts to make budgeting and banking for each part of your life crystal clear.
#6 Ownership, transferability, and continuity
While no one wants to think about it, no one lives forever. Establishing a separate business entity makes passing your business on to the next generation a simpler process. With an LLC or corporation, your business and your vision can outlive you.
Also, when it comes to selling your business, selling shares in your business, or taking on partners, setting up an LLC or corporation is non-negotiable. Investors, buyers, and partners want the formal structure and liability protection.
Entrepreneurship can feel like a lonely journey. But it does not have to. The business services team at Rocket Lawyer is here to support you and help you Start Up Confidently™. Sign up for a Rocket Legal+ membership to get your first LLC or corporation registration for FREE*, and get HALF OFF* all future business registrations.
*Excluding state fees.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.