A trending topic (and one we believe people looking to start their own business should be aware of) is the benefits of creating an LLC. LLC stands for “limited liability company” and is rather self explanatory. When determining what type of entity you want your business to be, LLC’s are commonly chosen because they shield the business owner’s personal assets from liability. Any claims against your business would not extend further into your own pockets, so long as you abide by the applicable LLC laws and observe certain business formalities.
To ensure liability does not reach your personal assets it is important to respect the LLC business structure. This means the business must be separate from the owners/members. The following are some of the ways to insure liability does not extend to your personal assets:
- Create a separate bank account for the company’s earnings.
- Make sure the business is not undercapitalized and is able to carry out its business functions and meet reasonably anticipated obligations.
- Do not use the business assets or funds for personal purposes.
- Keep records of the LLC such as recording meetings and actions taken by the company.
Another benefit of choosing an LLC is that they are not subjected to double taxation. This means that the business itself is not taxed, unlike a C corporation, for example. LLC owners report their share of the profits and losses from the LLC on their personal tax returns.
If you are interested in starting an LLC here in North Carolina or want to know more, please send us an email at the Elon Law Small Business and Entrepreneurship Clinic: businessclinic@elon.edu.