If you want to start a business, one of your first decisions is what corporate structure you will choose. You need to consider whether you will have partners or investors and what industry you plan to compete in. Limited Liability Companies have become popular business structures, so you should know the pros and cons of this structure that interests you.

The Cons of Forming an LLC

Some investors cannot invest in an LLC, while others do not appreciate the structure. However, if you don’t plan to take your company public or gain outside investment, this disadvantage may not affect you. Unfortunately, LLC members tend to have higher taxes because they will also pay self-employment taxes. Investors tend to dislike these tax implications. They may also be subject to taxes in other states due to the passive income they earn.

In addition, the business fees are a bit higher than that of a sole proprietorship. If you have several members or owners, your paperwork requirements are more substantial, and LLC lawsuits may not receive favorable treatment. For example, corporations can request that any litigation occurs in their state, while LLC litigation may occur in any state the company operates in.

The Pros of Forming an LLC

Forming an LLC is typically an easy process. It requires a simple form sent to your secretary of state. You also need to file additional papers once per year, making starting and maintaining an LLC easy. However, corporations have significant paperwork, and they need to hold regular board meetings. They also need boards of directors.

LLCs have a pass-through tax structure, so your taxes should be easier to complete every year. In addition, the profits are not subject to dual taxation as corporations experience. Because of the pass-through structure, profit distribution occurs based on your operating agreement after the deduction of the company’s profits, so it is easier to have multiple members or shareholders.

This structure also protects your assets because it separates them from your business assets and debts. You can also have foreign members. Membership is also flexible and limitless. You can also choose your management structure. Whether you or another member runs the business day to day or you hire a manager is your choice. Finally, passing your business through a trust to your beneficiaries is much easier.

After you determine the corporate structure that will best benefit you, all you have to do is file the paperwork with your secretary of state, and you have a business.