Costs and Maintenance
LLCs can be expensive to form and maintain. The main LLC cost is the state filing fee, which ranges from $40 to $500. You have the option to form one yourself or use a service.
Member Disputes
Setting up an LLC shields personal assets from business debts and lawsuits, and the control stays with the members. However, LLCs can bring disputes between members, especially when there are differing ideas on operations or profit distribution, which can cause conflict.
Tax Complexity
Another downside is taxation complexity. While LLCs avoid corporate-level taxation by passing profits and losses to owners, they may still face double taxation. This occurs when profits are taxed both at the corporate level—if the LLC is taxed as a corporation—and at the personal level. In addition, members owe self-employment tax.
Liability Protection Differences
While LLCs generally offer some level of liability protection, they may not offer the same level of liability protection as a corporation.
LLCs are hybrids of corporations and partnerships, but not every organization can be an LLC. States have specific rules about LLCs, and it is important to be aware of the legal structure’s limitations and requirements.
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