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Home » Small Business Planning » Why a Limited Liability Company is Better Than a Sole Proprietorship

Why a Limited Liability Company is Better Than a Sole Proprietorship

May 11, 2017 by Larry Parman, Attorney at Law

limited liability company

A Limited Liability Company is a type of business structure that many company owners choose for the protection  this structure provides. An LLC can also be useful in estate planning, as you can create a company and pass a membership interest in the company on to family members and loved ones over the course of your life. 

While a Limited Liability Company (LLC) has many advantages, the creation of an LLC is not necessarily right for every person, company, or situation. You need to talk with an experienced attorney to find out if an LLC is right for you. You should definitely speak with an attorney if you have a business you are currently running as a sole proprietorship, because forming an LLC is almost always better than operating as a sole proprietor.

Parman & Easterday can provide you with assistance in understanding what a LLC is, how an LLC works, and why you might want to create one. To discover more about this and other entities you can form, give us a call today.

Why a Limited Liability Company is Better Than a Sole Proprietorship

When you start a business but do not form a business entity like an LLC, your business is a sole proprietorship. Many companies are operated as a sole proprietorship because the business owner does not know how to form a different business structure or is not aware of the benefits of doing so. If you are a sole proprietor, you should strongly consider looking into organizing your company as a different type of business…like an LLC.

An LLC is better than a sole proprietorship in most cases because:

  • An LLC provides protection for personal assets.

When you run a company as a sole proprietorship, there is no legal separation between you and the company. If the business is sued and a judgment entered, your personal assets are at risk. If the company goes into debt, you could be forced to pay personally. If the company needs to file for bankrupt, you will have to file for personal bankruptcy. With an LLC, you are protected as long as you don’t intermingle personal funds and company funds and do not co-sign for business debts. Your personal wealth is safe from business loss and you can lose only what you invested in the company if things go wrong.

  • The LLC exists as a separate entity.

Because the LLC exists as a separate and independent entity from you, it is easier for you to transfer the business on to the next generation. When you are a sole proprietor, your business could die with you. You want your company to be a legacy for your loved ones. You can help to make that happen by creating an LLC so you can transfer on a membership interest. An LLC is helpful not just for the ease of business succession, but also for estate planning. Many people over their lifetimes will transfer membership interests in a strategic way to reduce estate tax that might otherwise be triggered.  If you are operating as a sole proprietorship and have substantial business assets that will transfer as a part of your estate, you cannot take advantage of this planning and reduce or eliminate potential taxes.

  • An LLC can be easier to form than other types of businesses

While forming an LLC still requires more paperwork than just operating a company as a sole proprietor, it is much easier to form an LLC than to structure your business as a corporation.

Getting Help from An Oklahoma Business Succession Planning Lawyer

When you create a Limited Liability Company, you must file appropriate paperwork with the state. You can obtain necessary forms from the Oklahoma Secretary of State. Be sure to talk with an attorney before you obtain and complete the forms, both to make sure LLC formation is right for you and to ensure that you complete the LLC formation process properly.  This, however, is just the first step.  Once the company is formed and registered with the state, there is still much work to be done.

Parman & Easterday can assist you with creating an LLC, a corporation, or any other appropriate type of business entity. To find out more about how an LLC can help you protect your wealth, keep your company safe, plan for your company’s future, and interact with your estate plan, give us a call today at (405) 843-6100  or contact us online. You can also join us for a free seminar to find out more about how LLCs work and why forming one may make sense for you.

  • Author
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Larry Parman, Attorney at Law
Larry Parman, Attorney at Law
Founder and Owner at Parman & Easterday
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.
Larry Parman, Attorney at Law
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