Reasons to Form an LLC?
The primary reason for small business owner operating as a sole proprietorship to form a limited liability company (LLC) is, as the name implies, liability protection for the business owners.
Operating a business as a sole proprietor means that the owner is personally liable for any debts, judgments, or damages awarded as a result of litigation. Operating as an LLC, however, owner’s personal assets and finances are not vulnerable to liability that may be incurred during the course of doing business. Generally, the owners are not responsible for liability, rather the LLC itself is responsible for debts and liabilities.
The flexibility of the LLC also provides for different treatment by the IRS should the owners deem this advantageous. For example, in the event that members wish to hold significant profits within the LLC rather than distribute those earnings, the LLC may elect to be taxed as a corporation without actually altering the legal structure of the LLC.