LLC business pros and cons [Fact-Checked]

Last updated : Aug 22, 2022
Written by : Darrell Accurso
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LLC business pros and cons

What are the negatives of an LLC?

  • Cost: An LLC usually costs more to form and maintain than a sole proprietorship or general partnership. States charge an initial formation fee.
  • Transferable ownership. Ownership in an LLC is often harder to transfer than with a corporation.

What are 3 advantages of an LLC?

  • Limited Personal Liability.
  • Less Paperwork.
  • Tax Advantages of an LLC.
  • Ownership Flexibility.
  • Management Flexibility.
  • Flexible Profit Distributions.

Is an LLC a good idea for a small business?

Forming an LLC not only gives your small business credibility, but it also allows you to protect your personal assets, gain access to unique tax breaks, and establish a centralized structure for your enterprise. Once you have your LLC established, you need a business banking partner to help you manage your finances.

How is LLC taxed?

An LLC is typically treated as a pass-through entity for federal income tax purposes. This means that the LLC itself doesn't pay taxes on business income. The members of the LLC pay taxes on their share of the LLC's profits. State or local governments might levy additional LLC taxes.

At what point do I need an LLC?

When a business owner has personal liability protection, they can't be held personally responsible if the business suffers a loss. This means personal assets (car, house, and bank account) are protected. If your business already earns a profit or if it carries any risk of liability, you should start an LLC immediately.

How much does an LLC cost?

LLC Filing Cost Filing costs will vary depending on the state laws but generally range from around $40 to up to $500 . Along with filing the articles of organization, most states require that businesses obtain a business license. Business license costs range from around $50 to $100 in most states.

Why is LLC the best?

The main advantage to an LLC is in the name: limited liability protection. Owners' personal assets can be protected from business debts and lawsuits against the business when an owner uses an LLC to do business. An LLC can have one owner (known as a “member”) or many members.

How does an LLC protect you?

Personal asset protection. An LLC provides its owner or owners with limited liability. This means that means you—the LLC owner—are generally not personally liable for any debts incurred by your LLC business or most business-related lawsuits.

What should I put for purpose of LLC?

Statement of Purpose. Most states do not require you to be specific about the purpose of your LLC. Instead, a statement such as "The purpose of the Limited Liability Company is to engage in any lawful activity for which a Limited Liability Company may be organized in this state" is usually sufficient.

Why are LLCs so popular?

A corporation requires a great deal of paperwork in filings, minutes of director meetings and other reports. LLCs avoid most of that paperwork. Corporations are also restrictive on who can be owners. There is no limit on the number of members an LLC can have.

What does LLC mean for dummies?

An LLC, or limited liability company, is a U.S. business structure that combines the simplicity, flexibility and tax advantages of a partnership with the personal liability protection of a corporation. Owners of LLCs are called members.

Is it better to be self employed or LLC?

You can't avoid self-employment taxes entirely, but forming a corporation or an LLC could save you thousands of dollars every year. If you form an LLC, people can only sue you for its assets, while your personal assets stay protected. You can have your LLC taxed as an S Corporation to avoid self-employment taxes.

What is better for taxes LLC or S Corp?

LLCs. As an LLC owner, you'll incur steep self employment taxes on all net earnings from your business, whereas an S corporation classification would allow you to only pay those taxes on the salary you take from your company. However, itemized deductions could make an LLC a more lucrative choice for tax purposes.

What is the best tax structure for LLC?

As a simple and effective tax structure, many multi-member LLCs will find the partnership tax status to be an ideal choice. However, if your company plans to seek funding from outside investors or other types of passive owners, you may want to consider being taxed as a corporation.

What are the 3 types of LLC?

  • Single-member LLC for the sole-proprietorship (solo entrepreneur)
  • Multi-member LLC (member-managed LLC or manager-member LLC)
  • Domestic LLC and Foreign LLC.
  • Series LLC.
  • L3C Company (low-profit LLC)
  • Anonymous LLC.
  • Restricted LLC.
  • PLLC and LLC.

How much can an LLC write off?

If you have $50,000 or less in startup costs and are in your first year of business, the IRS allows you to deduct $5,000 in startup costs and $5,000 in organization costs from your taxes. If your startup expenses exceed $50,000, the total deduction will be reduced by however much your expenses exceed $50,000.

How can an LLC avoid taxes?

An LLC can help you avoid double taxation unless you structure the entity as a corporation for tax purposes. Business expenses. LLC members may take tax deductions for legitimate business expenses, including the cost of forming the LLC, on their personal returns.

How much money should I make before forming an LLC?

There is no income threshold you have to meet before you form an LLC. But there are many considerations you'll need to make to know when it's the right move for you.

Should I start an LLC before making money?

Is an LLC Necessary To Start a Business? You don't need to start an LLC when establishing your business. However, if you want to differentiate between your assets and the company, an LLC is the right way to go. You should start an LLC if you want to start a business and protect your personal assets.

Should I put my money in an LLC?

The main advantages of setting up an LLC for investment are personal asset protection, tax benefits, limited personal liability, and convenient management.

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LLC business pros and cons

Comment by Tamra Cuez

in this video i'm going to talk about the advantages and disadvantages of having an llc so the main advantage of an llc is you're getting the limited liability that you would receive if you had created a corporation however you get to be taxed as a partnership or if it's a single member llc with just one owner you get to be taxed as a sole proprietorship however you do still have to file articles of organization with your state you can create a an llc in any of the 50 u.s states the articles or organization however are not that difficult it's a lot easier than creating a corporation in fact in some states it's literally just a one-page document that you would fill out say what's the name of the llc and so forth you pay like a hundred bucks and congratulations you now have an llc now i said that norm so if you have a multi-member llc and by the way a member is just an owner of the llc so when i say multi-member i mean there's like more than one owner so if you have like let's say two members okay so you got two people on the llc you can choose to be taxed at so the default would be your taxes or partnership as i said but also you could choose to be taxed as an s corp or you can be choose to be taxed as a c corp now if you have a single member llc you can also say you obviously can't choose to be taxed as a partnership if you're a single member llc but if you're single member the default is to be taxed as a sole proprietorship but you could also make an election to be taxed as an s corp or even if you want to be taxed as a c corp which would be kind of unusual so you get to choose how the llc is taxed so there's a lot of flexibility in higher tax but you still get that limited liability that you would have had if you had created a corporation okay so when you create these articles of organization i told you it's pretty straightforward but remember all 50 states have different laws so your state might have very different regulations than another state in which your llc happens to be doing business so you need to bear in mind like okay if you're doing business in six different states and look at what the rules are in each of those states and in the state where you created the llc sometimes it's just like okay you pay that initial fee of 100 and then after that there's no additional fees but you might create an llc in a state where maybe every year there's a thousand dollar fee for having that llc okay so you might you would check into whatever state you happen to live in and what are the laws regarding llc's and another disadvantage in addition to having to figure out what the laws are for your state and whatever fees might apply what is because llc's were just created in the late 1970s we don't have as much case law on them so in some cases when you're trying to figure out like oh how would this certain tax position uh how would that be treated uh it could be that it's really uncertain and you don't know how that transaction is going to be treated for tax purposes so the state law is very it's not as clear of how certain things will be taxed and so that's a disadvantage of an llc but again what you're getting you're getting that liability protection of the corporation so somebody sues the company they can't come after the members of personal assets but you're getting this this huge flexibility in terms of how the llc is taxed

Thanks for your comment Tamra Cuez, have a nice day.
- Darrell Accurso, Staff Member

Comment by kaDariyu8

all right everybody i'm logan alec i'm a cpa in this video i want to answer uh the questions of uh first what is an llc um then are there tax benefits setting up an llc and finally uh what are the pros and cons of setting up an llc i get the llc question a lot from people who started a business or who were thinking about starting a business or buying a rental property i personally have an llc for my own business it's called alec media llc so i thought i'd put together this video to speak to all you folks out there who are thinking about setting up an llc because aside from lending a degree of credibility to your business there are definitely some distinct benefits of having an llc but also possibly some drawbacks as well and i'm going to get into those in this video one little freebie here for you all before we begin is that if you do set up an llc and your llc's name is your brand and you want a website for that brand buy the related domain name for your business before you set up your llc because just as an example from my own life i didn't do this and sure enough after i set up my llc alec media llc i was looking to register but i found that right after my business information was published on the secretary of state website someone bought the domain and i assumed this company whoever's doing this whenever they see a new llc pop up because it's public information you can see them on the secretary of state website for your state i imagine they do this for many businesses right um uh and and you know i imagine that oftentimes the business owner really wants the domain name for that business but this company picked it up right because they saw the llc filing and they probably want a lot of money to sell to the business owner i haven't checked in a while alec might be available now off to check but that's one little freebie here before we get into the meat of this video do your domain name research ahead of time pick up that domain name if you're serious about it all right uh let's move on from that before we get into all the good stuff in this video i need to give you a disclaimer that i'm not an attorney i'm a cpa i'm a tax professional i'm not a legal professional the true experts on setting up llc's and maintaining llc's and the whole liability protection of llcs the true experts are attorneys business attorneys not cpas that said i am a tax professional i can speak authoritatively on tax matters that pertain to llcs but keep in mind i'm not an attorney and even if i was an attorney i'm not your attorney and even though i am a tax professional i'm not your tax professional um so everything in this video should be taken for general informational purposes and not as tax advice legal advice or any other kind of professional advice so with that out of the way let's talk llc's first what is dlc well llc stands for limited liability company so just breaking down the name there starting with that last word company an llc is a company meaning that it is a separate entity from you if you don't have a business entity set up an llc or corporation partnership something like that then you know when you go out and do business you'll be doing business as you sure you might have a dba uh but you know legally you are doing business as you so when i started my blog my done right back in 2017 yeah my blog was called my done right but when i went out and uh signed with an uh a display ad management agency to put ads on my blog so i can monetize it that way and we had a contract well in that contract it was between ad agency xyz and logan alec just me just this guy right here right but after i set up my llc alec media llc in 2018 my business started doing business and entering into agreements as alec media llc with me logan alec as a member of the llc so obviously an lc is a company right is an entity that is separate from yourself as an individual breaking down the name even more an llc is a limited liability company meaning that it can theoretically offer you liability protection mean that if your lc gets sued your personal assets could theoretically be protected i say theoretically because very often that doesn't work out as well as an llc owner might think it does i'll talk a little bit more about that later now an lc is not the only kind of company you can set up that can theoretically offer you liability protection just like uh you can go to your state secretary of state website right because llc's and all these legal entities are created with your state secretary of state office i know there's a lot of people out there you know selling courses and and whatnot i know you should set up in nevada llc or wyoming i'll see whatever and again i'm not an attorney right but from what i know attorneys have told me and my clients you generally just want to set up your llc in the state you're doing business in which you know if you have an online business like me or you know a service business that's probably gonna be the state you live in right anyway back on track just like you can set up an llc in your state with a secretary of state you can also set up a corporation uh partnership right like for example here in my state california secretary of state website you can see all the different kinds of business entities you can set up in california corporation llc limited partnership general partnership limited liability partnership uh sole proprietorship now those three partnership entities those all require at least two partners right in a partnership and for most people out there i think that's not what you're looking for here right you're solopreneurs right you got an idea you want to go out and hustle but an llc or corporation right you can form with one person obviously a sole proprietorship is only one person as well but you don't need to file any special forms of the state at least not in my state to form a sole prop all you might need is a dba if you use a name other than your name and of course a sole proprietorship doesn't offer any liability protection but when it comes to the new entrepreneur the solopreneur right looking at forming a business in a need for their small business their you know their freelance business or their youtube business or their blogging business or their house cleaning business or whatever um they're typically looking at either corporation or llc and more often than not an llc right the reason why many people go with the llc rather than corporation is that it's typically less complicated and less costly to set up and maintain an llc than a corporation and it makes more sense for tax purposes for many folks too of course there can be other owners in your lcd corporation uh but i know most of you out there who have a small business it's just you so i'm really just talking to you solopreneurs here um and for the most part just the action of setting up an llc or secretary of state is pretty straightforward you want to look on your state secretary state website to make sure the name you want isn't taken you have to file your articles of organization with the state here in california and i'm

Thanks kaDariyu8 your participation is very much appreciated
- Darrell Accurso

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