You don’t start your own business unless you are willing to take a few risks. You knew that there was a chance that your business could go belly-up before you got started, but you believed that your company could make it. But while a certain amount of risk is inevitable in this line of work, you can protect your personal assets by creating a Limited Liability Company or LLC. As a small business owner, you should ask yourself, “Should I create an LLC?”
An LLC keeps your personal and business assets separate. That way, if your business gets sued or gets behind on its bills, creditors can only come after the assets of the business itself. In a sole proprietorship, your house, car, and other personal assets could be at risk if your business experiences financial difficulties.
If you are a sole proprietorship or a partner-owned company, an LLC will not change the way your business is taxed. Converting to an LLC does not make your company a separate taxable entity.
Your company does not need to be a certain size or bring in a certain income for you to form and LLC. Stay-at-home moms who sell crocheted blankets online can create an LLC if they want to protect their personal assets from business liabilities. The exact procedures on how to file for LLC status vary from state to state.
If you have significant personal assets like a house or a retirement plan, you should ask yourself, “Should I create an LLC with my business?” Think of it as buying insurance for those assets. In the world we live in today, you could have a customer tomorrow who sues your company for an obscene amount of money. If you have an LLC, your house, car, and personal savings would not be up for grabs in that type of situation. Converting your business to an LLC is a guarantee that you won’t lose everything you have over a bad day at work.
Being your own boss will always have its risks, but shielding yourself and your family from total financial ruin is a wise thing to do.