When forming your small business, there are a few paths you may take. Among them is the Limited Liability Company (LLC) structure. This is a common choice for entrepreneurs and business owners who either bear sole decision making or do so with one or two partners. There are several reasons why you might go the LLC route and—like any business structure—there may be some drawbacks.
Before we dive into the pros and cons, know that not every business will thrive under the LLC formation. Each small business is unique and will require its own tailored approach. The service or product you deliver and the potential ceiling for your expenses will various create demands and complications. That said, here is what you should know about the LLC structure:
- Simplified administration: LLCs often require less paperwork and more simplified procedures.
- Tax breaks: As an LLC, you may decide not to pay your federal taxes. Rather, you list the company’s financial variances in your personal tax returns.
- Legal protection: Because your personal assets and your business assets remain separate in an LLC structure, your personal assets are indirectly protected from the demands of lawsuit damages. However, that does not mean you are immune to penalties for criminal actions.
- Dissolution: One drawback to the LLC is that it may become dissolved should an owner die or file for bankruptcy.
- Future plans: If you would one day like to make your business a publicly-traded entity, an LLC may not be the right structure for you.
There are, of course, varying degrees of advantages and disadvantages as you approach a business structure. Ultimately, which path you take will depend on your goals for the company and your needs as an owner.