One of the significant misconceptions that many people have is that small businesses cannot become limited liability companies (LLC) or incorporate. This could not be further from the truth because all businesses can be run as LLCs irrespective of size. Typically, most entrepreneurs who start alone run their ventures as sole-proprietorships, in which case they are the same thing with them.
But what they may not know is that changing their businesses to LLCs could offer them many benefits.The most notable benefit is that their assets will be protected if, at any point, there are claims for business legal judgments or debts.
Here are some of the reasons small enterprises should become LLCs:
Boosts the Credibility of the Business
Limited liability companies or incorporated businesses are deemed to be more credible than sole proprietorships. After adding the name LLC or Inc to a business name, the sales may grow because they may perceive the venture as more reliable.
Moreover, in some industries, it is easier to win contracts when a business has a formal structure. Some significant clients, also like corporations and government departments, are only comfortable doing business with official companies than individuals (sole proprietorships and partnerships).
Protects The Founder’s Assets
The fact that the owners of LLCs are held liable for business debts up to the extent of their investment in the business is one of the main advantages of incorporating, especially for small businesses. If you run a venture alone, you are at a higher risk of losing your assets due to the business’s debts. You are also answerable for all the business legal suits, and you could find yourself bearing hefty fines and penalties that can bring you down.
Allows the Business to Get Funding Easily
Mostly, third party investors require some formal structure when they want to invest in businesses. For example, venture capitalists tend to be more inclined to work with corporations because they provide different stocks. So, if you intend to attract venture capitalists and angel investors, you are better off when you have a formal structure. This is because sole proprietorships and partnerships have to enter into contracts in their names. It is also easier to build creditworthiness as a formal business because it will not rely on the owner’s credit profile.
On top of the above, running an LLC helps to protect the owner’s privacy. The registered agent’s address goes into records, not the owners’ residential or business address.