Members of an LLC benefit from a legal shield that protects their personal assets from being seized to pay the company’s debts or to resolve any legal problems. LLCs are also quite flexible in terms of allowing an unlimited number of members, and the ability to allocate profits in ways that can suit a variety of needs and requirements. In addition, although the LLC is required to file a tax return, the actual earnings are not taxed separately, but pass through to the members who pay the taxes on their individual returns. In 2018, pass-through entities such as LLC’s will receive a 20% tax deduction under the recent tax reform for 2018.
As a hybrid structure with elements of both partnerships and corporations, the disadvantages of LLCs are relative. Compared to a sole proprietorship, running an LLC involves higher costs and greater complexity – in exchange for some level of liability protection. Yet compared to a corporation, or even a partnership, the administrative hassles are negligible. LLC drawbacks include a lifetime that’s limited to 30 or 40 years, ineligibility for many professions, and unsuitability for larger companies that generate a lot of cash.
If you need liability and professional indemnity protection, have fewer than a handful of owners, and want to avoid the double taxation of a corporation, choosing a business structure of LLC may be your best option.
Start by considering your liability protection need. If an LLC makes sense, check its rules and availability, which vary from state to state. Be sure to familiarize yourself with the regulations that will apply specifically to your business.
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