The first thing that most people have to understand is that
a business entity, regardless of the type, is nothing more than forms that are
processed at the local probate court.
You do not need an office building or place of businesses to create a
separate business entity. In fact, there
are many businesses in this country that only exist on paper.
The easiest way for most people to create a separate legal
entity is by forming a limited liability company (LLC). An LLC is a business entity which creates a
wall of separation between the owners and the business. While one or more individuals form the LLC,
the business itself is a complete entity by itself.
Many small businesses form themselves as an LLC for the
protection it affords. Because the LLC
is a separate entity, if the business is sued, only the assets of the business
are at risk. Anyone filing suit against
the business cannot go after the assets of the owners of the company.
What also makes an LLC more attractive to smaller
businesses—as well as individuals using LLC’s—is the way in which it is taxed
and regulated. LLC’s have the advantage
of pass-through taxation. This means
that the profits and losses of the LLC can be recorded on the tax return of the
owners, rather than on a separate tax return for the business. This, of course, saves paperwork and time for
the owners of the entity.