The Advantages and Disadvantages of Forming an LLC

Forming an LLC or limited liability company is a simple process. There are no complicated procedures and documents involved in putting up an LLC and the process is self-explanatory for those who are interested. This is the reason why many business people are attracted in starting an LLC instead of a corporation. There are also a lot of advantages when you have a limited liability company. best LLC service

What is an LLC?

An LLC is a kind of business structure in which the owners of the company are protected in terms of their personal assets just like in a corporation. But unlike corporations, an LLC has simple terms of management depending on the members and simple requirements in maintaining the company.

Benefits of forming an LLC

One of the most known advantages of forming an LLC is the protection of personal assets of the owners (called as members) in case the company cannot pay its debts. This is the reason why the name of the business structure is limited liability. For this, creditors cannot file for the possession of the members’ personal assets. This is an advantage over sole proprietorship or partnership.

Another advantage of an LLC is the pass-through taxation. The company itself does not pay taxes to the government; instead, the income or loss of the company is included in the members’ individual income tax return. The tax is passed-through to the members instead of paying the tax at a business level. This prevents double taxation that is happening in corporations where the company pays taxes at business level and at the same time the shareholders pay taxes for their dividends.

Forming an LLC makes the management of the company easier. Limited liability companies have a flexible management or organizational structure and do not have restrictions on how many owners the company may have. The structure of the company is agreed upon by the members itself and not by law. An LLC can have one, two or many owners and their rights and responsibilities are written in the operating agreement of the company.

Lastly, forming an LLC can increase credibility of the business as customers will see it as a formal commitment to the business. This will drive investors and clients and make the company grow.

Disadvantages of LLC

There are also few disadvantages of limited liability companies. One of which is the payment of fees for the company. In starting an LLC, the owners have to pay a filing fee for the Articles of Organization before the company is established. Filing fee can range from $100 to $800 depending on the state where the company will be located. This is a disadvantage over sole proprietorship or partnership where there are no fees needed when filing for the establishment of the company.

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