Forming an LLC is the simplest way to protect one’s personal assets when starting a business; it does so by separating them from the business’s activities so that if the business is sued, the personal assets are preserved.
COVID-19 is shaping 2021 to be the perfect year for establishing an LLC; tax benefits and other financial resources available due to COVID legislation have created an environment conducive for new business ventures.
Setting up an LLC requires relevant insurance – whilst LLCs protect personal assets, they do not, in themselves, protect the assets of the business.
LLC insurance works in tandem with an LLC to ensure that both the owner’s personal assets and the business are financially protected in the event of a loss or lawsuit.
Economic Conditions and Business Ventures
The economic effects of COVID-19 have forced many companies out of business, creating a level playing field as a consequence for new companies to enter the market; where existing businesses can find it difficult to adjust products and adopt novel technology, new companies can tailor goods and services to the current reality.
The best example of this is the transition towards a remote workforce that COVID has facilitated, a new company can begin completely remotely and take advantage of the newest technology but established businesses may struggle to adopt these new methodologies.
Available Financial Resources
Congress recently passed a multitude of financial resources to ease the financial strain caused by the outbreak. The Coronavirus Aid and Relief Act (CARES Act) and the Consolidated Appropriations Act allow small businesses to apply for forgivable loans under the Paycheck Protection Program (PPP) to help pay employees and other day-to-day business operations.
Relief for small businesses is also available from private sources, with companies such as Facebook establishing grants for small businesses, and organizations such as Bank of America offering economic relief for members.
Whilst most of the governmental programs offering financial assistance to small businesses require that they existed before COVID, some programs are available to new ones and certainly represent a motivation to establish an LLC in 2021.
A large reason for many people deciding to form an LLC in 2021 is due to the tax benefits it can offer: pass-through taxation and a 20% pass-through tax deduction on one’s personal return.
The CARES Act provides additional tax help for small businesses on top of all this by allowing a full deduction of one’s net operating losses. This is particularly pivotal because most new businesses operate at a loss in the first year.
Residents of California can form an LLC anytime between 2021-2023 and benefit from a one-year exemption from the state’s minimum $800 franchise tax.
The Requirement for LLC Insurance
The formation of an LLC business structure provides protection in the form of limited liability to the owner’s personal assets; this creates a separation between the two, limiting liability to that of the business’s assets.
Necessarily, this means that limited liability doesn’t provide any protection for your business’s assets, specific insurance policies for this are required that guard against specific liabilities.
Without it, the LLC is vulnerable to potential business risks and financial losses such as accidents and lawsuits. There are many types of LLC insurance available: professional liability, general liability, business owner’s policy, to name a few.
The type(s) of investment needed depends on the type of business owned. Most states require LLCs to have certain types of coverage, such as: workers’ compensation insurance, unemployment insurance tax and disability insurance, among others.
As a result of the effects of COVID-19 on the global economy, market conditions are opportune for the establishment of LLCs.
Lockdown has led to an increase in remote workforces, which levels the playing field for newer businesses as it is easier to establish such a group of employees from nothing than completely shift a tangible one to remote.
Additionally, the government and private companies are offering financial incentives to help support stay afloat during COVID such as tax rebates.
All of these conditions render 2021 an optimal year to found an LLC. However, such companies require LLC insurance as the business’s assets are exposed without it.