Pros and Cons of an LLC Business Structure
November 16, 2018
Limited liability companies (LLCs) are one of the most popular business structures for budding startups. LLCs provide the liability protection of a corporation and the pass-through taxation benefits of a sole proprietorship or partnership.
Whether an LLC is the right structure for your business depends on a variety of factors. Evaluating the general pros and cons of this arrangement can help you decide if it’s worth pursuing, and discussing the specifics of your startup with a business law attorney can ensure you’re making the right decision.
Read on to learn the pros and cons of an LLC business structure.
Pros of Establishing an LLC
When deciding on the structure of your business, it’s important to look at the advantages of an LLC.
1. Limited Liability
One of the greatest advantages of using an LLC structure is in its name: limited liability. The owners of an LLC are not personally liable for the company’s financial obligations. Therefore, their homes, vehicles, and other personal assets are not at stake if creditors attempt to collect from the business.
2. Avoidance of Corporate Returns
An LLC’s profits pass on directly to the owners without being taxed by the federal government first. This prevents the owners from having to submit complicated corporate returns and allows them to account for the funds on their personal income tax returns instead.
3. Easy Creation and Maintenance
One final advantage of establishing an LLC is the fact that it’s relatively easy to create and maintain. However, it’s still wise to seek legal counsel before getting started to ensure this arrangement is the best structure for your company and to avoid making critical mistakes along the way.
Cons of Establishing an LLC
Before moving forward with registering your business as an LLC, it’s important to consider the drawbacks of this structure.
1. Risk of Liability
A limited liability company may not protect you from all liability. In certain scenarios, a judge can rule that the LLC structure does not protect the owner’s personal assets from creditors. To avoid such a dilemma, it’s essential to keep all business transactions and personal obligations totally separate.
2. Taxes for Employees
There are also tax burdens to consider before starting an LLC. For example, the IRS typically taxes LLCs as partnerships by default, which means their members are considered self-employed and are therefore responsible for covering their own Social Security and Medicaid taxes.
In certain scenarios, however, it is possible for the IRS to tax an LLC as a corporation, so its members only have to pay Social Security and Medicaid taxes on actual compensation, as opposed to on all the company’s pretax profits. A business attorney can help you file the appropriate IRS forms for your LLC to be taxed as an S corporation instead of a partnership.
Call (765) 742‑9046 to discuss your case with a Lafayette business lawyer.
If you want to start a business in Indiana, turn to Ball Eggleston for strategic legal guidance at every stage of the process. We have an unwavering commitment to protecting our clients’ best interests, and we can help you avoid potential disputes and resolve any issues as swiftly as possible. Call (765) 742‑9046 or use our online contact form to set up a consultation with one of the leading business law attorneys in Lafayette.
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Disclaimer: The content of this blog is intended to be general and informational in nature. It is advertising material and is not intended to be, nor is it, legal advice to or for any particular person, case, or circumstance. Each situation is different, and you should consult an attorney if you have any questions about your situation.