Some entrepreneurs opt for an easier business model like a sole proprietorship due to its simplicity. However, as a business finds itself growing, they may find it beneficial to go from a sole proprietorship to an LLC or Corporation.
Deciding which business structure to choose plays a significant role when using the entity for anonymity, asset protection, and tax savings.
LIMITED LIABILITY PROTECTION
One reason a business would choose to convert to an LLC or Corporation would be due to the liability protection they offer. Both LLC and Corporations offer a cloak of protection that separate one’s personal assets with the businesses. In essence, if the business under goes financial or legal troubles, personal assets can’t be targeted. Serving as a sort of veil of protection for the business owners’ personal assets. This sort of protection is critical for a business owners own security.
Now, both LLCs and Corporations offer a better financial structure for your business because of the flexibility they offer over a Sole Proprietorship. Corporations have the option to choose between C-Type or S-Type Corporations depending on the circumstances. While LLCs have a pass-through option for the business, allowing the taxes to flow through to the owners’ personal taxes, simplifying the tax process.
LLC’s and Corporations also have legal requirements and formalities that need to be upheld on an annual basis, like meetings and maintaining proper reports. Even though this might come off as cumbersome to some, this proves to give clarity on the path to success. Unlike sole proprietorships or partnerships which are bound to the life of the owner, Corporations and LLC’s can be passed on to the next generation of owners perpetually. Allowing for clearer business structures, and the ability to draft legal documents. This allows businesses to plan for a solid and financially successful future.
Converting to either an LLC or Corporation should be considered a strategic move for sole proprietorships. This could bring many benefits to your business by bringing tax benefits, liability protection and an opportunity for growth. However, the decision to convert should be made with careful consideration to the specifics of each other’s situation.
Spiegel & Utrera, P.A. offers free legal advice to help you start the process of converting your sole proprietorship into an LLC or Corporation. Submit a request today for immediate legal assistance.
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