Pros of an LLC
- Liability Protection: Members’ personal assets are protected from company debts and lawsuits.
- Tax Flexibility: Allows pass-through taxation where profits and losses pass directly to owners’ tax returns.
- Less Paperwork: Establishing an LLC is simpler than incorporating, with more flexible management and profit sharing.
- Flexible Ownership: No restrictions on LLC ownership by most states.
Cons of an LLC
- Self-employment Taxes: Members must pay self-employment taxes on earnings.
- Raising Capital: More challenging than with corporations.
- Tax on Retained Earnings: Extra taxes may apply here as well.
How to Start an LLC
- File Articles of Organization with the state.
- Create an operating agreement outlining profit and management.
- Obtain an EIN from the IRS.
- Secure any required business licenses.
- Define your target market and business goals.
- Consistent quality service and products.
- Build brand through marketing.
Tax Considerations
LLCs can elect taxation as a partnership, sole proprietorship, S-corp, or C-corp, often opting for the first two due to pass-through taxation benefits. Owners pay personal income tax on LLC profits.