If you are self-employed, there may be at least three benefits of operating your business as a Limited Liability Company (LLC). In most states the cost is roughly about $200 to form a LLC and about $100 per year to maintain it. The potential benefits are:
- Liability protection – This is the usual reason, to separate and protect personal assets from liabilities of the business.
- Identity theft protection – An LLC can be used to limit the distribution of the owner’s social security number that might otherwise need to be provided to a large number of business contacts. In most states, however, the identity of a single member LLC owner can be found in state records that are available to the public. For this reason many LLCs are formed in the state of Delaware where this public disclosure is not required. It is more expensive to form and operate a Delaware non-disclosed LLC through an agent appointed for this purpose.
- Protection from wage tax audits – An LLC provides an added level of credibility and defense to an argument that you are operating as an independent contractor and not as an employee.
This list is not meant to be exhaustive. There may be other benefits of operating as an LLC. However, one reason specifically not on the list is taxes; there is usually no tax effect from operating as a one member LLC (unless the member also elects to be treated as an S corporation).
Before deciding on a business format it makes sense to brainstorm and list the advantages and disadvantages of each possibility under consideration. I offer this business entity planning discussion as part of the concierge advisory package described at wealthmanagement.us.com.