This article is part of Poised & Professional’s “The Confident Entrepreneur” Series. For all articles in this series, click here. 

When you’re starting your own business, you are bound to have a LOT of questions.

When I was starting my e-commerce store, one of things I was really concerned about was protecting myself from a financial and tax standpoint. I wanted to follow all the rules for business creation.

But I just didn’t know what these rules were or even how to find them.

One of the pieces of advice I heard from several people throughout my business start up process was: “you should create an LLC.”

So I created an LLC.

…And then ended up dissolving it a year later.

Why?

Because starting an LLC ended up costing me over $800 in the one year that I owned it.

Here’s the rule of thumb:

Unless your business makes over $25,000 a year, you probably DON’T need an LLC.

When you file for an LLC, not only do you have to pay registration costs, but you will also have to pay yearly fees for filing taxes, which for me ended up being $800.

I wasn’t given enough information about the different business ownership costs and advantages before I jumped in to business ownership!

So, I want to help aspiring entrepreneurs like you avoid the situation I was in by providing a quick guide to different types of business ownership.

Do I Need To Create An LLC?

As an entrepreneur, there are a lot of business ownership choices out there and, if you’re new to the game, it can be difficult to choose which structure will work best for you.

Creating an LLC is NOT your only option. In fact, it may not be a good choice, especially when you’re first starting out!

What is an LLC?

An LLC, or a Limited Liability Company, is a business structure preferred among some small to medium sized businesses.

LLCs allow you to separate your personal assets from your business, so if your LLC is in trouble, you aren’t automatically at risk too. Creating an LLC also offers much more flexibility in business management. It protects you from double taxation, lends credibility to your company, and simplifies your business management paperwork and record-keeping.

That all might sound pretty great, but LLCs have their disadvantages too (which is why I ended up dissolving mine).

Not only does filing for an LLC require you to pay registration costs, but the yearly fee for tax filing can be VERY expensive! And, while LLCs avoid double taxation, they are subject to self-employment taxes, which can be much costlier than corporate taxes.

So, while creating an LLC may be a smart choice for some, unless your business makes over $25,000 a year, you probably DON’T need an LLC.

Other Types of Business Ownership for Entrepreneurs

There are several other types of business ownership for you to pursue as an entrepreneur. 

After I dissolved my LLC, I used decided to use a sole proprietorship structure to organize my business. This type of structure requires no registration or paperwork. You automatically create one by just becoming an entrepreneur!

With sole proprietorship, your business finances and assets are not separated from your personal ones, so you are fully liable for anything that goes wrong with your company. However, this simple business structure can work very well when you’re starting out and not bringing in much of a profit yet.

Other forms include C corps, which offer more financial and personal protection than LLCs but may involve more taxes, and S corps, which are similar in structure to regular corporations but avoid double taxation through more rigorous qualifications and additional fees.

So, when you’re asking yourself, “do I need an LLC?” remember to crunch the numbers and make an educated financial decision!