In 2023, entrepreneurs broke records when 5.5 million new business applications were filed in the US. Increasingly more people are being brave and becoming their own bosses, and you’re about to follow suit too.
It’s not easy though, especially since there’s lots of administrative work to handle. Plus, things can get confusing. For example, lots of people form limited liability companies (LLCs), but does that mean you have to as well?
Now, you might be thinking, “Can I start a business without an LLC?” Read this article to find out the answer to this question and more helpful details.
Can I Start a Business Without an LLC?
So first things first: “Do I need an LLC to start a business?” The good news is no, you don’t!
This means that if you’re already offering services for money on your own, then you’re probably considered a sole proprietor, so you wouldn’t even need to create a company to continue. However, there are several disadvantages of sole proprietorship to consider, making it only a good short-term solution.
What Options Are Available?
Sure, there’s minimal paperwork and setup involved with a sole proprietorship, but as we’ve just said, there are many drawbacks. So keep your options open by looking at these other possible business entities you can use.
Partnership
A partnership involves two or more owners of the company. They agree to share the profits, losses, and management of the business.
Partnerships are easy to establish and allow for shared responsibilities. They also offer combined resources and skills.
However, if you have any disagreements with your partners, they can lead to complications. You’re personally liable for business debts and legal obligations too.
Corporation
There are two types of corporations: C-corp and S-corp. These are more complex structures where the business is a separate legal entity from its owners or shareholders.
Corporations are great because they have limited liability protection. You can also raise capital through the sale of stock. In addition, corporations have a perpetual existence.
The drawbacks are that there are more regulations and you might face double taxation with a C-corp. You can avoid this by opting for S-corp status instead.
Doing Business As (DBA)
If you’re operating under a name different from your legal name, you’ll need to file for a DBA. It’s important to know that this doesn’t create a separate legal entity; it’s just a way to register your business name.
It’s a low-cost and straightforward way to set up a business. However, you have no liability protection.
Freelancing/Consulting
If you’re providing services on a contract basis, you may not need to form a separate business entity. Besides being a sole proprietor, you can operate as a freelancer or consultant. With this route, you can report income on your personal tax return.
You don’t need a formal business structure here, which means there’s minimal paperwork. However, like with a DBA, you don’t have liability protection.
Why Is Creating an LLC Company a Good Idea?
We’ve gone through the other options, but ultimately, LLCs are usually the best choice for most entrepreneurs. While the answer to the question of, “Do I need an LLC?” is no, it’s still something to consider. Here’s why.
Liability Protection
LLCs offer personal liability protection, which means that your personal assets are generally protected from business debts and lawsuits. Many of the above choices don’t, such as sole proprietorships and partnerships.
Flexibility
An LLC has flexibility in terms of management and tax structure. For example, LLCs can opt to be taxed as a C-corp or S-corp, although they’re taxed as pass-through entities by default.
Also, LLCs can be member-managed or manager-managed, and within that, members can be individuals, corporations, and even LLCs. Ownership percentages can be distributed in any way the members choose too.
Whereas with corporations, they must adhere to a more rigid structure, and decision-making processes are more formalized. There’s more regulatory oversight and restrictions.
Ease of Formation
Forming an LLC is generally straightforward and requires fewer formalities than a corporation. In addition, there are fewer ongoing compliance requirements, such as meetings and record-keeping.
Even though it’s easy to create an LLC, there’s still paperwork to deal with. If you want to avoid that, then we’re here to help with our free business registration service.
Start Your LLC Today
The answer to the question, “Can I start a business without an LLC?” is yes. But real life is much more complicated than that. While there are other business entities you can choose, for most entrepreneurs, LLCs are the most advantageous since they have liability protection.
Of course, you should still weigh up your choices to see which align best with your business goals and personal needs. Think about consulting with a tax or law professional to make a better-informed decision.
Sign up with Business Anywhere now to use our free business registration service. We also have registered agent services if you need that too.
