Perhaps you are ready to launch your new consulting firm and are contemplating different formats.
If you want the most protection for your business, why not consider establishing it as a limited liability company (LLC)?
Similar but different
Many people consider the LLC to be among the easiest business types to set up. With respect to taxes, the LLC is similar to an S corporation in that you can report business income and expenses on your personal tax return. If you are the sole owner, the Internal Revenue Service will allow you “disregarded” entity status. This means that like a sole proprietor, you will report your firm’s income and expenses on Schedule C of Form 1040.
LLC benefits
An LLC is a good choice if you anticipate business losses for at least the first two years and you wish to pass those losses along to yourself and any co-owners. An LLC will also provide management flexibility as well as bookkeeping flexibility since you would not have to use the accrual method of accounting. Additionally, the LLC format does not require the meeting and documentation requirements of a corporation. Most important, however, is personal asset protection. If your consulting firm goes bankrupt, your home, car, personal bank account and other assets are safe because they are separate from the business.
Further considerations
With a limited liability corporation, you may have to pay a little more to start your consulting firm than you would as a sole proprietor or partner. You may also have to pay unemployment compensation to yourself. If you decide on the LLC format, be sure to open business accounts and keep your personal business separate from the LLC.
