What is an LLC?
A limited liability company (LLC) is a business structure that provides personal liability protection for business owners.
Advantages of an LLC
- Personal asset protection: Owners are not personally responsible for the company’s debts and obligations.
- Tax flexibility: LLCs can choose how they are taxed, allowing for pass-through taxation in most cases.
- Ownership flexibility: Ownership of an LLC can be easily transferred between individuals, businesses, trusts, etc.
- Credibility: Adding "LLC" to a business name establishes credibility with customers.
Disadvantages of an LLC
- Self-employment taxes – Members pay these taxes on LLC profits.
- Limited lifespan – If a member leaves the LLC, it may need to dissolve.
- Difficulty raising funds – LLCs often cannot sell stock, and banks may view LLCs as risky.
Costs of Creating an LLC
The state filing fee ranges from $40 to $500 depending on location. Additional legal, accounting, and compliance costs can apply to set up and run the LLC.
Pros and Cons of an LLC
The general point of an LLC is a business structure that balances your benefits and legal protections.
Benefits of Forming an LLC
The main advantage to an LLC is 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.
Risks of an LLC
A limited liability company (LLC) protects personal assets. If the business has issues, your personal assets are safe. However, LLCs can be expensive to form and maintain.
LLC Taxation
LLCs can elect taxation as a partnership, sole proprietorship, S-corp or C-corp. Most adopt partnership or sole proprietorship status for pass-through taxation.
LLC for Real Estate Investors
The primary benefit of forming an LLC for real estate investors is that personal assets are protected in case something goes wrong at a rental property.
State Rules and Costs
States have rules about LLCs. The main LLC cost is the state filing fee of $40-$500. You can form one yourself or use a service.
Tax Benefits of an LLC
For tax purposes, there are huge benefits for an LLC owner. LLCs pass profits and losses to owners, who pay taxes. They may not offer the liability protection of a corporation.