LLCs: What They Are and What Are The Advantages and Disadvantages?

Are you planning to set up your own limited liability company (LLC) in the USA? 

Many entrepreneurs pick this company structure over the others because it offers multiple benefits. At the same time, it also has its fair share of downsides. 

Before you finalize your decision, make sure you are well-informed about all the advantages as well as the disadvantages of LLCs.

To help you keep up, here is a quick overview of everything that you need to know about LLCs:

What Is an LLC?

The Essentials Facts of LLCs You Need to Know as a Small Business Owner

An LLC is a type of company structure that has mixed features of corporations and partnerships. Like partnerships, they have flow-through taxation. Additionally, they also offer a limited liability protection feature that is typically seen in corporations. 

In a nutshell, you get the best of both worlds. 

In an LLC, you can also have as many members as you want. There is no cap on the number of members that can be a part of an LLC. Also, members of an LLC can be corporations, individuals, or even other LLCs.

Now that we’ve covered the basics, let’s check out the advantages and disadvantages of LLCs.

What Are the Advantages of LLCs?

The biggest advantage of forming an LLC is that you don’t need major financial backing. 

They are relatively cheaper and also easier to form. In all the 50 states of the USA, you can form an LLC by filing Articles of Organization.

Another benefit of LLCs is that members are not liable personally for any debt that the LLC takes on. The government treats the LLC as a separate entity. 

In LLCs, you get the freedom to decide how you want to split up the profits between the members. There is no binding rule that you have to equally split the profits.

When it comes to taxation, LLCs offer a big benefit. 

The taxation structure is such that you don’t have to pay tax twice at the entity level as well as the individual level. 

What Are the Disadvantages of LLCs?

For LLCs, you need to complete filings at the federal level as well as the state level. In addition to this, you are also required to pay the fees for state filing every year. 

If you have ambitions to make your company go public, LLCs aren’t the best choice. 

Want to know more about LLCs? 

Check out this infographic by GovDocFiling to learn more:

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Article Author Details

Brett Shapiro

Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.