You should register your business and change from a sole proprietorship to a limited liability company (LLC) when you are ready for significant profit and cash flow. An LLC offers your business the same legal protection as a corporation, but allows you to remain operating as a small business.
A limited liability company, or LLC, is a business type that allows a small business to limit the liability of its owners. This means that business finances such as debt, claims, liens and lawsuits are limited to the business itself and cannot affect the personal assets held by owners – in most states and in most cases.
LLCs are managed by state, meaning when you file for your LLC in the state that you reside or that your business is managed in. You will need to ensure that your business name is available and be willing to add LLC to the end as most states require it to be added on.
Arizona state breaks down the steps to creating a small business on their website, but in a simplified version, you should:
If you are unsure of your next steps, contact a local Arizona attorney for assistance or clarification.
An LLC does not negatively impact your taxes – nor make large changes to how you will pay your taxes during tax season. LLCs are considered pass-through entities meaning they do not pay state and federal taxes, instead the income is “passed through” and taxed as the owner.
Whether you are an LLC or not, if your business has employees you will be responsible for paying payroll taxes. If you are a product based business and your state requires you to collect and pay sales tax, you will also be responsible for paying sales taxes to your state as an LLC.
Not all small businesses should consider switching to or filing as an LLC, just as not all small businesses should remain as a sole proprietorship. Here are a few reasons why you should consider switching to an LLC:
Not sure if filing as an LLC is right for your business? Talk to a MODVentures Consultant today.