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BizReport : Law & Regulation : November 29, 2018


The Why and How Behind Forming an LLC for Your Online Marketing Biz

For some reason, entrepreneurs often have this idea that online businesses can skirt by some of the rules that other brick and mortar establishments are forced to follow. However, it doesn't matter if you're online or offline, big or small, new or old - you need legal protection from the various risks that exist in the marketplace.

Common Legal Structures for Small Businesses

You can only sell a few products on the side for so long before you need something to help you manage things like trademarks, taxes, finances, and legal protection. And though the idea of forming a legal structure for your business might seem extremely complicated, it doesn't have to be - particularly if you choose a specific format. But before highlighting this type of business structure, let's highlight some of the options you have.

• Sole proprietorship. The simplest business entity of all, the sole proprietorship is a pretty straightforward structure in which one person - the business owner - is responsible for all of a company's profits and debts. However, the simplicity of the venture also means that there's no separation or protection of personal and professional assets. You and the business are one and the same.

• Partnership. If there are two or more individuals at the helm of the business, a partnership can serve as a simple solution. There are general partnerships (where the business is shared equally among the partners), as well as limited partnerships (where control and responsibilities are divided).

• Corporation. With a corporation, the business entity is totally separate from the individual. It has all of its own legal rights and can be sued on its own, without impacting the business owner's personal assets. Because of this, forming a corporation is a more detailed and intensive process than the other legal structures on this list.

• Limited liability company (LLC). Finally, you have LLCs. This is a hybrid structure that allows owners, partners, and shareholders to limit personal liabilities while still enjoying some tax benefits.

The Advantages of LLCs

An LLC isn't right for every small business, but it's often the preferred option. This is true for a number of reasons, including:

• Limited liability. As the name suggests, an LLC comes with limited liability for the owner. "Generally, this means that business debts owed by the business, and other claims on the business, including liens and lawsuits, are limited to the assets of the business itself," entrepreneur Kevin Mercandante writes. "Those holding such liens against the business cannot pursue the personal assets of the business owner(s) in most states and under most circumstances."

• Pass-through taxes. The IRS doesn't consider an LLC to be a distinct separate entity for tax purposes. This allows the business owner to treat the LLC's taxes as income on a personal tax return. In this case, it's much easier and more cost-effective come tax season.

• Simplicity. When compared to other options like corporations and partnerships, LLCs are extremely simple to set up. They're also much cheaper to file - potentially saving thousands of dollars in attorney fees that other legal structures require on the front end.

How to Form an LLC for Your Marketing Biz

As mentioned, setting up an LLC is a pretty easy process (at least comparatively speaking). While the exact rules may vary depending on the state in which you're filing, the process typically looks like this:

• Choose a business name that's available and complies with your state LLC rules.

• File the appropriate paperwork - typically referred to as articles of organization - and pay the filing fee. This fee generally runs from $100 to $800.

• Develop an operating agreement for your business, which sets out the rules and responsibilities for any members of the LLC.

• If your state requires such, file a notice of intent to form an LLC.

• After completing the first four steps, your LLC is official. However, before you can open the doors to your business, you'll need to obtain all of the appropriate permits and licenses to operate.

In terms of setting up a business, it doesn't get much easier than an LLC. If you're looking for more advice on how to proceed, meet with a tax professional to walk you through the pros and cons of different legal structures.



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