You’ve decided to start a company and are figuring out which structure to choose for it. Limited liability companies (LLCs) can seem like preferable options among the variety of choices.
What’s more?
They are commonly chosen by many entrepreneurs as they have the best features of both corporations and partnerships.
But before deciding to go ahead with an LLC, let’s take a look at their advantages and disadvantages.
Pros of LLCs
1. Easy to Form
LLCs are easy and relatively inexpensive to form. Additionally, you can form them in all the 50 states by filing your Articles of Organization with the Secretary of the State.
2. Limited Liability
LLCs have the limited liability feature of corporations, which means that the owners will be shielded from the liability of the company. They’ll not be personally liable to pay the debts.
3. Profit Distribution
In LLCs, you can also decide on the profit distribution model as agreed by the members. It doesn’t need to be 50-50.
4. No Formal Records
You don’t need to maintain any formal records of meetings or resolutions in LLCs, unlike corporations. However, it’s extremely important to create and maintain an operating agreement — even if it’s not normally required. This can protect yourself and any partners during disputes or difficult situations.
5. No Double Taxation
You’re shielded from double taxation in LLCs. The income flows through to the members in a single-member LLC so you only pay the personal income tax. For multi-member LLCs, you can choose to be taxed as an S-Corp to avoid paying self-employment tax.
Cons of LLCs
1. Need to do Filings
When you start an LLC, you need to do state and federal level filings. Additionally, you have to pay the state filing fees every year. You’re not required to do this in a sole proprietorship or partnership firm.
2. Difficulty Going Public
If you want to go public with your LLC or want to give out employee shares, an LLC isn’t the best option for you. Instead, you should opt for a corporation.
If you want to learn more about LLCs and their pros and cons, check out the infographic below designed by GovDocFiling.
