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Starting a lifestyle business can be one option for individuals seeking to build wealth. It allows them to align their companies with their passion and interests. Lifestyle business deals with selling things such as specialty food items, handmade crafts, unique fashion, accessories, etc. You can start one to cater to a specific niche market. 

If you’re contemplating starting a lifestyle business, one key decision you’ll have to make is to choose your legal entity. Your selection can have significant implications as it affects aspects such as the company’s management structure, fundraising options, and personal legal liabilities for the firm. While there are several options, a limited liability company is one common structure for lifestyle business owners. 

Reasons an LLC Might Be Suitable for Your Lifestyle Business

If you’re wondering whether forming an LLC for your lifestyle business is a good move, you can be surprised how beneficial it can be. This article outlines key reasons to consider an LLC for your lifestyle business. Once you’re convinced it’s the right structure, you must follow the steps to open an LLC. That said, here are reasons why LLC might be suitable for you. 

Offers Limited Liability Protection

You’d want to form an LLC for your lifestyle business because it offers limited personal liability. If your lifestyle business is a sole proprietorship or partnership, you and the company are considered the same. This means that you can be legally held liable for the debts and other liabilities of the business, so if the business fails to honor its liability obligations, you might be at a high risk of losing your personal assets. 

Once formed, an LLC becomes a separate entity from its members. It does most things under its own name, including signing contracts and taking loans. So, your personal properties can barely be used to cover the company’s debts or negligence. 

Provides a Tax Saving Advantage

Reducing expenses is one way to ensure your lifestyle business continues to thrive. When you minimize expenses, you make more profits, which is vital for sustainable business growth. You can maximize your lifestyle business profits by reducing its tax burden. This is where forming an LLC becomes necessary. 

An LLC allows for federal pass-through taxation on profits, meaning the company doesn’t pay taxes on its name. Instead, profits and losses are passed on to the members, who then pay and file taxes on their personal tax returns accounts, providing a tax advantage to the company. 

Additionally, forming an LLC for your lifestyle business can help avoid double taxation. Some business entities, for instance, a corporation, has the disadvantage of double taxation. The company will pay taxes out of its annual profits, and shareholders will also pay taxes from their share of dividends. This double taxation may significantly reduce your earnings. In an LLC, however, only the members will pay taxes from their share of returns, thus eliminating the possibility of double taxation. 

It Is Easy to Start and Run an LLC

Forming an LLC requires less paperwork, especially when compared to a corporation. The process is so straightforward that you can even walk alone. However, it’s recommended to hire professionals such as a corporate lawyer and a registered agent to guide you through and ensure you aren’t committing potential mistakes. 

Apart from starting an LLC, running it is simple. An LLC’s compliance requirements and administrative tasks are so straightforward, making it less complex than other business entities. Therefore, if you want to avoid a lot of complex processes in your lifestyle business, an LLC could be your ideal option. 

Boosts Your Credibility

Earning credibility is an effective way to grow your lifestyle business. You must earn trust if you want to attract new clients, apply for a loan, or find talented workers. Forming an LLC can improve the credibility of your business when applying for financing. When required, utilizing key aspects of SBA 7(a) loans could help secure necessary funds to expand or sustain your lifestyle business. Your ability to become credible will majorly rely on your company structure. 

While a sole proprietorship is the simplest form of a business to start and run, they’re often viewed with less credibility, especially when compared with an LLC. Therefore, you might not be able to build your wealth quickly if you start your lifestyle business as a sole proprietorship. 

On the other hand, LLCs are viewed with a higher degree of legitimacy. Forming one for your lifestyle business will enhance your credibility, instill trust in potential customers, and attract talented workers leading to sustainable business growth. 

Wrapping Up

One important step when starting your lifestyle business is to choose your company structure. And as detailed in this article, there are several reasons to consider forming an LLC for your lifestyle business. It provides legal liability protection, a pass-through tax advantage, flexibility in management, etc. Ensure you follow the necessary steps to succeed in your LLC formation. 

Feature image by Mailchimp | Unsplash

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