List of Pros and Cons of Limited Liability Corporation
A limited liability corporation, or LLC, is usually the simplest business structure that can be formed in the United States. There are several pros and cons to consider if you’re thinking about this structure for your business.
List of the Pros of an LLC
1. It separates your liabilities.
When you incorporate your business with an LLC, you’re eliminating the risk of putting your personal assets at risk if litigation targets your company. Sole proprietors and general partnerships do not have this luxury.
2. It is very affordable.
In most states, the cost to start an LLC is under $200. You may have additional licensing and certification fees to pay, though compared to the cost of starting an S Corp or a C Corp, an LLC is usually much cheaper.
3. It offers a flexible tax structure.
You get to choose how you wish to be taxed with an LLC. Most people choose the pass-through method, though you can also choose to file a C Corp-style method to file their own business taxes or structure themselves in a way to avoid self-employment tax.
4. It has no restrictions on partners or members.
You can start an LLC by yourself. You can layer an LLC with other companies in some jurisdictions. You can have numerous partners without restriction.
List of the Cons of an LLC
1. It still carries a cost with it.
Most LLCs can be started for less than $1,000, though there are some exceptions. You’ll also be required to pay ongoing annual filing fees to keep your business active. Each state sets their own fee rate.
2. It creates salary issues.
In the U.S., owners and members are not recognized with a right to collect a salary from their LLC. It must be drawn out of the company instead, like a form of profit-sharing. This means you can be taxed on more than you actually earned from the business under some circumstances.
3. It can be difficult to raise money.
Because LLCs are usually structured as a pass-through entity, it can be difficult to raise funding for the company. That is because an LLC presents more risks than the S Corp or C Corp structure for investors.
These Limited Liability Corporation pros and cons are important to consider if you’re thinking about starting a new business. Examine all your business structure options, then settle on the choice which works best for you.