By The Wyoming LLC Attorney Team
Jun 03, 2022If you're looking to become a business owner and you're searching for the right entity to form, forming an LLC is a popular option. It's a business structure that is similar to a corporation but with less complexity and all the protections. Forming an LLC is easy enough to do, and it provides the flexibility to run your business how you see fit, including drafting an operating agreement to define management structures and roles. This option is particularly appealing for those considering a single member LLC due to its simplicity in requirements and asset protection benefits. Additionally, understanding the cost involved, managing taxes, preparing the annual report, and the possibility of establishing an anonymous LLC are all critical components of this choice.
Forming an LLC in Utah provides you with many of the same benefits you gain when incorporating a business. It’s a step up from being a sole proprietorship, which is your default structure in the eyes of the IRS. Anyone can do business, but protecting your personal assets takes some extra effort. Here are the benefits you gain by upgrading from a sole proprietorship to an LLC:
The largest risk involved with operating any business comes from lawsuits, investors, or creditors, seeking to claim whatever they can to reduce losses or seek restitution should a business fail. Establishing which of your personal assets are part of your operations will protect those that are not. You can protect your bank accounts, vehicle, and home, among other things.
This is the number one thing you should seek when establishing a business, and while you can get in with a corporation, an LLC comes with other advantages as well.
LLCs have the ultimate flexibility when it comes to membership. It can be a single-member or multiple-member LLC, and each owner can be a different type of business entity. Individuals, corporations, and even other LLCs can be a part-owners of a single LLC. S corporations can benefit from the same pass-through taxation of an LLC, but they have a limit on the amount of shareholders. There is no such limitation for LLCs.
You might want to draw in other members or investors if you’re looking to grow your business. As a sole proprietorship, it can be hard to convince others to invest in you, a single individual. An LLC though, shows a certain level of commitment to your own desire to grow a business that is sure to bring in entities that are more willing to invest in your cause. A corporation might have a little more appeal, but an LLC is better than nothing.
One of the main reasons an LLC is so appealing is the ability to elect taxation. A single-member LLC is naturally taxed the same as a sole proprietorship. Similarly, a multiple-member LLC is automatically taxed as a partnership. Both of these take advantage of pass-through taxation. Corporations can experience what is known as “double taxation,” where the corporation is taxed as an entity, and then the individuals who receive dividends are taxed. The same profits are essentially taxed twice, hence the double taxation.
It is possible to reach a size for your business entity and a corporation’s tax system is more beneficial. Fortunately, your business can elect to be taxed as a corporation instead. Filing Form 8832 and updating the IRS with your preferred form of taxation allows you to adjust to the method of taxation that works best for your business.
Compared to other states, Utah has a low cost to file an LLC. Other states can cost as much as $800 just to form an entity, but Utah keeps it at a reasonable $70. Annual report costs are also fairly low at $15 per year, so it really is a low-cost state to protect your assets.
Utah is a state with a high small business survival rate. Each year there are a plethora of new LLCs, partially due to the state being considered one of the top tax and regulation states in the USA.
There are a couple of hurdles to get over in order to form an LLC that you wouldn’t encounter as an individual. Here are some downsides
Though costs are low in Utah, you are required to pay things you otherwise would not as a sole proprietor. If your business is actually more like a hobby, and the transactions you involve yourself with are low-risk, then you might not need limited liability protection.
Since your business has to have a registered agent, you will either have to pay for a service or handle the responsibilities required of a registered agent yourself. Not appointing an agent for service of process will lead to your application being immediately rejected.
A corporation with large expenses and a bigger net income doesn’t have to pay all of its earnings as dividends to shareholders. It can hold onto some of that money and carry it over to the next business year. LLCs taking advantage of pass-through taxation, or corporations operating as S corporations, don’t have this same benefit.
States like Wyoming allow you to form an LLC and remain anonymous when forming your LLC. That means your personal information is protected from the public. There are few states that allow anonymity, and they’re worth checking out if that idea appeals to you.
If you’re looking for a fast and simple way to start a business, then you should consider forming an LLC. You get all the advantages and protections that a larger Utah corporation gains, with simplified rules and regulations. It’s the perfect starting point for any entrepreneur looking to protect their assets when doing business in Utah.
Getting the most out of an LLC is something a business lawyer can guide you through. Protecting your assets is an important step to take, and having someone with the expertise to ensure you have that barrier can be just what you need. Consult with one of our legal experts and find out how we can help! Reach us by calling (307) 683-0983 or completing the contact form to get started.