Forming an LLC is a decision you shouldn’t take lightly. You have many options when forming a business, so you want to make sure you choose the right one for your particular situation.

That means reaching out to a professional attorney who can help you with the formation process, but it also means having an idea of what forming an LLC entails so you can have an educated discussion with your advisor. For example, creating the LLC operating agreement is a very important step that you will need to review.

Here are a few pros and cons of forming an LLC so you can decide if it’s the right choice for your business.

Your Personal Assets Are Protected

The biggest reason to form an LLC is to separate your personal assets from your professional assets. It’s the reason why many advisors will recommend forming an LLC even if you’re a one-person business.

Without an LLC, it is nearly impossible to tease apart your personal and professional assets. In the eyes of the government, they’re all one and the same. If something goes wrong with your business and Uncle Sam comes knocking on your door, your personal assets could be in jeopardy.

That’s not the case when you have an LLC. Even if your business goes south or faces a financial problem, you and your family are protected.

More Credibility

There are many ways to build credibility. You can:

  • Create a professional website
  • Have a business address and phone number
  • Be honest with stakeholders and customers
  • Promote achievements and awards

In addition, an LLC can help you appear more credible. It’s a sign that you take your business seriously enough to provide it with its own entity. It will make informed customers trust your product or service, and it will encourage investors to help you build your business.

Build Credit for Your Business

There comes a time in the life of every business where a little extra cash is needed. As you expand, you may need the cash to develop a new product, rent a new office space, or hire a few new employees. That cash can be hard to come by if you’re relying on personal credit.

With an LLC, your business can build credit on its own. Regardless of your particular credit situation, if your business has a good score, you will be able to get the financial support you need.

Ongoing Expenses

The worst part about forming an LLC are the ongoing expenses. Not only will it cost money to file your LLC, annual reports and fees may be required in some states.

Don’t forget about taxes! In some cases, you could end up saving quite a bit. In others, not so much. Make sure you discuss these concerns with your legal or a tax advisor before you make your final decision.

There are pros and cons of forming any kind of business, no matter how you label it. You just have to be informed. With this information and help from a professional advisor, you can decide if an LLC is right for you.