3 Thing You Should Know Before Becoming a LLC

If you’re starting a business, you’re probably wondering what business structure you should form. The difference between them all depends on the liability, shared profit, and forms you have to file. The majority of small business owners flock to becoming a LLC (Limited Liability Company), but here are a few things you should know before you do:

1.       You can be held personally liable

Most people choose LLC in order to be protected from personal liability for claims brought against the business. However, if you pay business expenses out of your personal bank account or use your personal assets as collateral, you’re taking away the personal part.  Prevent this by opening a separate account for your business. You might have the need for expenses from your personal fund. If so, write a check from your personal account to your business account putting “loan” in the memo. Then pay the expense from your business account. For loans, try to avoid using your personal asset as collateral. This way, you’re only risking thing money you’ve invested.

2.       Keeping Track of accounting can get you a loan

As I said before, you don’t want to use your personal assets as collateral to get a loan. The way to get a loan based on your business assets is to keep track of your finances. The money coming in is just as important as the money going out. There’s several accounting software that’s designed to help business owners. It knows the important things to keep track of so it’s easy to record your information. For the savvy business owners, there are Excel templates like The Royalty Factor designed for the same reason.

3.       Partners require additional filing

If the business ownership is more than one person, you may have to file additional tax forms, including a 1065. If the business has only one owner, your business income and expenses can be reported with your personal return during the tax season. If the business has more than one owner, how to split the profits should be discussed prior to determining any business structure.