There are several pros that come with starting an LLC or a Limited Liability Company, but there are some cons as well. Whether or not it is the right business structure for you depends on these factors. If you feel that the pros outweigh the cons, then an LLC just might be the right choice.
What Is a Limited Liability Company?
Before you start looking into the pros and cons of an LLC, it is a good idea to know exactly what it is. This business structure consists of one or more members who are the owners of the company. With an LLC, members don’t need to worry about business costs affecting their own personal assets. It is one of the fastest growing business types with more than 2.4 million LLC businesses currently in the U.S.
The Pros of a Limited Liability Company
Possibly one of the most appealing aspects of an LLC business structure is right in the name. Limited liability means that you are not liable for the company’s actions. If the company owes money, creditors cannot attempt to collect anything from the members of the company, which keeps your personal assets, such as your car or your home, perfectly safe.
Another pro of an LLC is that you have control of your company and can run it how you like. Your company can be managed by its members if that’s what you prefer, or you can bring in outside help if you need it. It can also be easier during tax season since a Limited Liability Company is not taxed on the corporate level. Instead, each member files their profits from the company with their personal income taxes.
The Cons of a Limited Liability Company
As with most things, an LLC does have cons as well as pros. Because a Limited Liability Company is not taxed as a corporation and is usually taxed as a partnership, members must pay self-employment tax, which includes Medicare and Social Security taxes, based on what the company earns. It is also possible that a judge can decide that your personal assets are not protected under your LLC structure if you do not keep a clear distinction between business and personal finances.
Having an LLC can also be complicated if a member decides to leave the company. In this case, the remaining members will be responsible for any expenses and for dissolving the company. You will need to form a new LLC if you wish to continue the company.
Ultimately, whether or not an LLC is the right business structure for you depends on how you want to run your business and how much risk you are willing to take.