LLCs: Is It the Right Company Structure For You?

Are you thinking about setting up your own Limited Liability Company (LLC) in the USA? Before you start the documentation process, make sure you know all there is to know about LLCs. To help you make an informed decision, in this post, we’ll talk about the advantages and disadvantages of LLCs. Before we delve into the details, let’s cover the basics.

What Is An LLC?

An LLC is a type of company structure that has hybrid features. It includes some features of Corporations and others of Partnerships. In LLCs, there is limited liability protection — a feature that is taken from Corporations. Similarly, LLCs also have flow-through taxation. That is a feature shared by Partnerships. It’s also important to note that owners in an LLC are known as “members.” For an LLC, there isn’t a set limit of the number of members that can be involved. Also, the members can be Corporations, individuals, or other LLCs.

What Are the Benefits That You Get From Forming an LLC?

First of all, setting up an LLC doesn’t require as much work as you need to put in to form other types of companies. Not only is it easier to create an LLC, but it is also relatively inexpensive. Another major benefit to note is that LLCs come with limited liability. What this means is that the members aren’t liable to pay the debt of the LLC personally. Members also have the full freedom to decide who gets what percentage of the profit. One member can opt for 70% of the profit, while the other one can get 30% of it. The ownership doesn’t have to be equal. Taxation in an LLC is also a major point to consider here. Corporations work on a double taxation system, but LLCs are different. In an LLC, the taxation for each member is calculated based on the percentage of ownership they have in the LLC. Apart from this, all the members also pay their self-employment tax. You also need to put in less effort to maintain LLCs. You are not required to keep a record of any resolutions or meetings around the year.

What Are the Disadvantages of LLCs That You Need to Be Aware Of?

As we discussed earlier, LLCs don’t require that you keep records of meetings. However, you do need to make sure you’re completing your federal as well as state-level filings. Also, you are required to pay the state filing fees for the first year you form your LLC, and for every year from then onwards. Another issue with LLCs is that they are not designed for those who want to have investors or go public. If that’s a goal you have in mind, you may be better off forming a Corporation. If an LLC is still the right option, you can get in touch with professional filing services to help you with the process of setting one up.