When you plan to launch a new business, you know that one decision you must make pertains to the type of operating structure your business will utilize. Depending on the nature of your new company, establishing a corporation may provide a layer of complexity you do not need. However, you know you want to protect your personal assets from any liability.
A limited liability company, also referred to as an LLC, may offer the right set of benefits for your new venture.
Corporation meets partnership
As explained by NerdWallet, an LLC includes some features similar to those found in a corporation structure and some features similar to those found in a partnership setup. For example, the personal asset protection enjoyed under the corporate structure also extends to the LLC. However, enjoying full asset protection does require that your records clearly delineate all personal and business expenses and income. Comingling of personal and business financial records may expose your assets to some liability.
Under a partnership agreement, each partner pays self-employment taxes. This may happen under an LLC as well. The company’s net earnings determine these costs. An LLC may elect to use the S corporation taxation model which results in the individual’s compensation determining these costs rather than the company’s pretax earnings. You should make the decision about your taxation model at the outset of your business setup.
This information is not intended to provide legal advice but is instead meant to give entrepreneurs in South Carolina an overview of how a limited liability company operates so they may decide if this type of business structure meets their needs.