Owning and running a business of any size comes with some share of reasonable liability for the business it conducts and the environment in which it conducts it. Having a situation where you end up owing a liability has the potential to eat into your personal assets if you haven’t structured your business in a way to protect this from happening. This is where the LLC (Limited Liability Company) most often comes into play. Operating your business activities under the umbrella of an LLC generally protects the member’s personal assets from being on the hook for the activities of the business.
Main Points of Note When Converting to an LLC
(The points laid out below show some main general considerations most people will relate to, but it always makes sense to work with a professional when setting up a new entity, as the full spectrum of considerations is very personal to each situation)
- Asset Protection – By far the biggest and most consequential aspect for most, operating in an LLC structure provides protection of the member’s personal assets from the liabilities arising in the course of a business’s operations. There are rules to make sure you follow in order to maintain this protection, and doing so will help to keep your personal assets from being utilized in the settlement of business debts and liabilities.
- Management Structure – An LLC provides the opportunity to structure management in a number of different ways based on the nature in which they participate in the business. It provides an opportunity to lay out management in a way that makes sense based on the makeup of those participating, with flexibility to change considerations like which members of the business have management authority, income allocation, and how each member’s interest in the business is treated when certain events occur.
- Fees – Creating and running an LLC comes with setup costs as well as some additional fees and expenses, depending on the state in which you are conducting business. These costs are often far outweighed by the benefits of setting up the business, but working with a professional to understand the scope of the costs will help you make the best decision.
ATA Context – The Meat on the Bone
We would advise utilizing an LLC in a majority of cases where any significant business (relative to the members running it) is being conducted. The peace of mind alone from knowing you are shielded from personal disaster in the event that your business owes money or is involved in legal disputes is worth the cost for most. Make sure to work with a professional to help you ensure that an LLC truly is the right entity for you and that the considerations of setting one up are addressed,, but do strongly consider setting one up for your business activities if you have not already!
