In the first edition of my regular legal column in TAAN, I thought it would be valuable to explore a question that I get from local business owners on a regular basis: What is the advantage of forming your business as an LLC as opposed to a sole proprietorship?

For many business owners, forming a new entity, and all of the necessary paperwork associated with doing so can be a daunting task. The legal terms and tax requirements are rather cumbersome, and so many businesses that start off as a simple sole proprietorship fail to make the necessary decisions to protect their assets well into the growth of the business.

For most small businesses, the LLC has become the entity of choice, offering liability protection for personal assets, as well as a better tax outcome than ordinary corporations. Unfortunately for some, a mistake or accident by the owner or employee or business may expose virtually all of a business owner’s personal assets to liability.

The single-member LLC is seen as an advantageous alternative to a sole proprietorship in many ways. The LLC provides protection from liability and pass-through tax treatment. This means that a business owner can avoid the “double taxation” associated with owning a corporation while still receiving similar protections from personal liability.

Furthermore, filing and maintaining an LLC is relatively simple. Income tax is reported simply on Schedule C of IRS Form 1040. The single-owner and member is free to manage the business as he or she pleases, because there is no other manager. Even when other owners exist, centralized management or other operating agreements can clearly define roles, risks, capital investment and responsibilities

It is important to seek advice of experienced legal counsel when forming or transforming your business. If your business is growing and you want to protect your assets and avoid legal problems and liabilities, you should make the time and effort to speak with your attorney today.

Tarek M. Baydoun is an attorney and counselor at Allen Brothers Law Firm and can be reached at his office phone at 313.962.7777 or by email at tbaydoun@allenbrotherspllc.com