Should A Small Business Sole Proprietorship Incorporate as LLC

Incorporating your small business as a recognized business entity has numerous advantages; however, each business structure has its own pros and cons. If you’re considering registering your business, here is a quick and easy-to-understand guide to the benefits and pitfalls of forming one of the most popular types of business structures: the LLC.

Why turn your sole proprietorship into an LLC

The day you began your business operations, you became a sole proprietor, a setup that allows a certain ease of doing business; however, when small businesses aspire to scale and expand their operations, they often find that sole proprietorship is no longer a viable business model and that’s when they start exploring other options. The greatest drawback of sole proprietorship is that the law treats you and your business as one individual and thus the liabilities and debts of the business are, essentially, yours.

There are several reasons why more and more small and medium enterprises (SMEs) are opting to register as LLCs, as follows.

Limited liability

Operating as a limited liability company (LLC) offers many benefits to the business owner. The greatest advantage is protection from financial obligations of the company. The law treats an LLC as a separate individual entity, which means that in case of litigation or insolvency or bankruptcy proceedings, the members’ personal assets cannot be utilized to settle debts and pay off lenders.

Taxation

LLCs are themselves not taxed, and the members enjoy the benefit of choosing between two different types of taxation structures: the pass-through taxation system or the corporation tax structure.

Funding

Another reason why you should consider incorporating your business as an LLC or even an S corporation is that investors and venture capitalists will often not be interested in funding an informal business such as a sole proprietorship.

Moreover, sole proprietors carry a business on their shoulders and can take it only so far. By adopting a formal and recognized business structure, you can plan for expansion and take your little venture to new heights. Do know that an LLC can have only a single member. So if you don’t wish to have partners, you can register as an LLC and employ a manager to look after your day-to-day operations.

The process of incorporation

The first key step to formalizing your commercial activities is to incorporate your business. The whole gamut of tasks associated with setting up an LLC can get much easier and less complicated when you hire a professional to do the tough work. Simply assign the job to an incorporation agency for a small fee and they will take care of everything from doing a name search to completing the complex paperwork to filing the incorporation fee with the relevant government agency. In addition, you get access to professional advice on the many nuances of the incorporation process.

However, if you’re a DIY small business entrepreneur who would rather do all of this by yourself, remember to gather all the information, documentation, permits and licenses you’ll need to get going.

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