Are you a freelancer or the sole owner/operator of a Michigan business? If so, you may wonder whether you should formalize a business structure. While it may not be necessary, there are benefits to doing so. At The Rubinstein Law Firm, we often help clients in choosing a structure and assist with their business formation.
If you are the only member of your company, a sole proprietorship or single-member limited liability company may be right for you. Each has benefits.
According to Intuit Quickbooks, sole proprietorships are the most basic structure, and organizations operate this way by default. As the owner, you take on all the risks regarding the debts and obligations the business acquires. Separate bank accounts keep company and personal assets separate. For this type of entity, you must only obtain the appropriate business permits, licenses and bank accounts before you can begin operations.
On the upside, any business income or losses can pass through to your personal tax returns. You can also deduct company expenses on your income taxes. The downside comes with liability issues. If your business files bankruptcy or dissolves, creditors can go after you.
A single-member LLC requires that you file paperwork with the Secretary of State’s office, choose a registered agent and list the physical address where they reside. In addition, you must maintain the entity by filing an annual report and meet other compliance requirements. For tax purposes, you can choose to operate as a C Corp or a sole proprietorship. If you elect to take the C Corp route, you will pay the corporate rate for federal and state taxes.
The upside to a single-member LLC is that you can have liability protection. Keeping business and personal financials separate can help ensure you comply with state and federal laws, protecting from creditors. You can also expand ownership and pass it on to others.
The right structure for your business depends on your particular situation. An experienced attorney can explain the ins and outs of each option and help you decide which provides the most benefit. Visit our webpage for more information on this topic.