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Why do those creating a start-up often form an LLC?

On Behalf of | Nov 17, 2021 | Entrepreneurial Law |

Starting a business is an exciting time. You likely see this process as a major opportunity, although it also comes with certain risks. Many entrepreneurs starting a business will choose to create a limited liability corporation (LLC) as a means of protecting themselves from personal liability for the business.

Why do so many people choose an LLC as their business form when they want to start their own company?

An LLC protects you from personal risks and losses

There are numerous benefits to starting an LLC. There are tax benefits in the way that you can pass through income, for example. However, one of the main reasons people turn to LLCs to protect themselves when starting a new company is because it limits their personal liability for the business, as the name implies.

When a business fails, the owner might face financial consequences because of the business. If the company loses a lawsuit, for example, the plaintiff might try to make a claim against the business owner’s personal property. Creditors could also potentially have a claim against your personal property or even future income for business debts in some situations.

The creation of an LLC and the establishment of separate business accounts create the clear delineation between business assets and debts and the owner’s assets and obligations. If the business were to fail, an LLC could protect you from the losses that result. It could also protect you from a lawsuit brought by employees or customers.

Learning about how to protect yourself when starting a business can help you minimize the risks involved.