The Advantages of Owning Your Own Company

Most entrepreneurs have to start as a sole proprietorship in the early days of their business empire simply because it genuinely is a one-person operation during the very early stages. Even if you look at corporate giants like Google, Microsoft or Apple you'll find that they were driven forward by one person, even though there might have been others involved in the building of the business.

However as your business grows it's a good idea to create an LLC instead, for the reasons we're going to cover here. An LLC is a "Limited Liability Company" and put simply it offers you personal protection from any financial pitfalls which your company might experience. Basically an LLC allows your business to become bankrupt without it having to affect your personal life - they exist independently of each other.

The first assumption people make in relation to forming an LLC is that it's far too complicated and only really something which is needed by big businesses. As we mentioned earlier however an LLC offers you the type of legal and financial protection that was once only available to those operating from within the safe confines of a corporation.

An LLC now offers any small business owners an equivalent level of financial and commercial protection, the importance of which we can't stressed strongly enough. Basically if you own a sole proprietorship and you run into financial problems you could face financial ruin, but an LLC protects you from that.

There are also some key tax benefits in operating from within an LLC, regardless of whether there is a single or even multiple owners. These include being taxed as a partnership, or even more beneficially as a C-Corporation or S-Corporation, reducing the tax burden on your business thanks to the tax breaks afforded to LLC's and corporations alike.

Here's a quick breakdown of the different types of company structures you can form:

Sole Proprietorship

This is the most basic business structure you can use, and is generally used by one-person businesses. A sole proprietorship is cheap and easy to set up but leaves you exposed to the full financial risk if your business experiences severe financial difficulty since sole proprietorships are operated under your personal Social Security number.

Limited Liability Company

Forming an LLC is a good idea the split second you have more than one person involved in a business, or if your business is experiencing significant growth and/or investment. Some people rely on a partnership as the foundation for their business, and either a Single Member LLC or a Partnership can offer you legal or financial indemnity.

Partnership

A partnership is a legal agreement between two or more people for how a company will be run. A partnership can be an extended version of a sole proprietorship or a Single Member LLC (depending on how you set it up) and in that will or will not offer the business partners involved legal or financial protection.

S-Corporation

This is a miniature version of the Corporation business model, with many of the same features but you're taxed at the individual level rather than as a business.

Corporation

If you're at the point in your business growth where you're wondering if forming a corporation for your business is the next best action for your business, then we can assure you that you're probably right. A corporation is a more complex business model than an LLC, and you'll require specialized advice in the formation and running of one.