When starting a business there are a lot of things you hear through the grapevine that you may think to be true. Though what you’ve heard may actually just be common LLC myths and cost you in the long run if you believe them to be true. So let’s bust them!
The 6 common myths of an LLC are:
- Registering an LLC will protect your business name. The confusion comes in because many get it confused with trademark protection. Forming an LLC does pretty much nothing when it comes to protecting your business name, brand name, or preventing someone else from using it. Check out “LLC or Trademark: Which Comes First?” if you want additional information on the difference between an LLC and a trademark.
- Forming an LLC will save taxes. Since an LLC is a pass-through entity (or if you’re a single-member LLC it’s a disregarded entity), it’s not going to save you anything in taxes. Essentially it means in the IRS’s eyes and as far as taxes are concerned, it’s as if the LLC doesn’t exist. Your tax liability as an LLC is the same as it would be as a sole proprietorship or general partnership.
- Forming in a certain state will save taxes. For example, states such as Nevada, Wyoming, and Delaware are seen as tax-friendly states. Though just because you form an entity in a state doesn’t mean you will be subject to those tax laws.
- You have to be a U.S. resident/citizen or live in the state where LLC is registered. Someone living overseas can choose to form an LLC in the U.S. just as a U.S. citizen might. Also, no state requires that you be located there to form an LLC.
- LLCs don’t need insurance. An LLC does a lot in protecting your assets, but it doesn’t do what insurance does. Having an LLC and good liability insurance is the best way to protect your business and assets.
- LLCs give absolute asset protection. Sometimes an LLC member can be responsible for the debts and liabilities of a business (piercing the corporate veil). Check out “The #1 Most Common Single Member LLC Mistake” to learn how to avoid being personally liable for your business debt and liabilities.
Tune in to this week’s episode of All Up In Yo’ Business to find out the truth about LLCs. And be sure to subscribe to our YouTube channel for more All Up In Yo’ Business!
Want more information on business? Check out: Trademark Myths Busted.