Starting a new business is an exciting time that includes a myriad of decisions. Some of these decisions can be more appealing than others, like designing a website or selecting a physical location for your business. Other choices can be daunting, like writing a business plan or selecting a business format. Choosing the right structure for your business is critical to protect your personal assets, save you money and set your business on the path to success.
A common business structure for small businesses is a limited liability company (LLC). However, there are myths surrounding LLCs that can be misleading and confusing. Understanding the difference between a few myths and realities of LLCs is an important step when deciding if this is the right business entity for you.
Myth #1: Forming an LLC in another state helps avoid taxes.
Forming your LLC in a state that doesn’t levy income tax might sound like a good way to ease your tax burden. However, taxes must be paid in any state where your business has a physical or economic presence. If you set up your LLC in Nevada but do business in Georgia, you will have a tax presence in Georgia. This means your business must pay Georgia state income tax. Establishing your business in one state and generating income in another will likely result in your business paying taxes and fees in both states.
Myth #2: Single-owner businesses do not need to form LLCs.
If you are running your business out of your home and don’t have any employees, you might think that forming an LLC is not necessary. A sole proprietorship as a business entity has its advantages, however, these business owners are fully responsible for all incurred debts and losses. In an LLC, the business, not the individual, is liable for the debts and liabilities acquired by the business.
Myth #3: Forming an LLC is complicated and expensive.
Filing the paperwork and figuring out what forms are needed for your application is relatively easy. In a few simple steps, including choosing a name for your LLC and preparing an operating agent, you will be on your way to launching your business. The filing fee for a Georgia LLC is $100, along with an annual $50 registration fee.
Choosing the right structure for your business can be a difficult decision. Take time to carefully consider your options and weigh the pros and cons of each before deciding.