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Are you thinking about starting your own business? As you begin this exciting journey, you no doubt have a lot of questions. Rest assured that Kerndt Brothers Bank will be there for you every step of the way. One of your first orders of business is to decide just what form of company you wish to establish: an LLC or a sole proprietorship.

An LLC, or limited liability company, provides the benefits of a corporation and the tax and operational advantages of a partnership. An LLC is a type of business structure determined by state law. Each state has different rules and regulations. In Iowa, there are eight fairly simple steps you need to take before forming an LLC including choosing a name, preparing an operating agreement, and filing biennial reports. To file as a business entity in Iowa, visit the Secretary of State website.

There are clear advantages to choosing an LLC structure.

  • Profit Sharing: The owners of an LLC are called “members.” These members can decide how to distribute profits amongst themselves.
  • Limited Liability: Should some negative financial event occur, all LLC members are protected from personal liability for the actions taken by the LLC.
  • Less paperwork: The beauty of an LLC is that there is much less regulatory paperwork required, compared to other types of business entities.

Following are a few disadvantages associated with setting up an LLC.

  • Self-employment taxes: Since members are considered self-employed, they must pay their own taxes for Medicare and Social Security.
  • Increased member liability: Depending on the state, when a member leaves an LLC, the business is dissolved and the remaining members are responsible for meeting all legal obligations.
  • Investor perceptions: Some investors remain ambivalent about LLC’s. As a result, you may find it more difficult to raise money for your company.

In contrast to the member structure of an LLC, one individual owns a sole proprietorship business. Unlike an LLC, you needn’t register with the state or file annual reports. Kerndt Brothers Bank wants you to know more about the pros and cons of setting up a sole proprietorship.

Here’s what you’ll appreciate about being a sole proprietor:

  • Easy and economical: One of the reasons sole proprietorships are so popular in America is that they are simple and inexpensive to establish.
  • Simple accounting: The government does not stipulate any accounting requirements. You should, however, keep detailed records for your own tax preparation.
  • Calling the shots: As the sole owner, you make all the day-to-day decisions for your business.

Following are some drawbacks to a sole proprietorship:

  • Taking the fall: As the owner, you have unlimited responsibility for any debts or legal issues that befall your company. Unfortunately, your own assets may be tapped to satisfy your business creditors.
  • Obtaining loans: Sometimes finding loans from banks may be more difficult for a sole proprietor, meaning future growth potential can be limited.

We hope this information has been helpful as you plan your business. Contact the experienced professionals at Kerndt Brothers Bank for all your financial needs. For more information about starting your new business, visit the Small Business Administration (SBA) website.

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Disclaimer

The material provided on this website is for informational use only and is not intended for financial or investment advice. Kerndt Brothers Bank and/or its partners assume no liability for any loss or damage resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.