Like a corporation, LLC's provide limited liability protection to their owners (called members). Typically, owners are not personally responsible for business liabilities or debt. Similar to an S-Corporation, LLC's do not pay tax at the business level and any business income/loss is reported on the owners’ personal tax returns. Although an S-Corp has preferable self-employment taxes, an LLC has less formalities and less restrictions on ownership.
Pros and Cons of LLC Setup
Pros of an LLC:
Limited liability protection. Owners / members are not typically responsible for any business liabilities or debt.
Eliminate double taxation: In an LLC all profits and losses are passed through to the owners and taxes are paid on an individual level (only once).
Fewer ongoing formalities. LLCs have less annual paperwork than C and S-Corporations and are not subject to their meeting requirements.
No ownership restrictions. LLCs can have an unlimited number (and type) of owners.
Flexible management. Owners have flexibility in structuring company management.
Credibility. An LLC may be perceived as a more professional/legitimate than a sole proprietorship or general partnership.
Cons of an LLC:
No salary or wages: Members cannot receive a salary or wages.
Self-employment taxes: In an S-Corp, only the salary of the owners will be subject to FICA and self-employment taxes (the rest of earnings are only subject to income taxes). But in an LLC, all earnings are subject to FICA and self-employment tax.
Less funding options: An LLC cannot issue stock, go public or be listed with any stock exchange. Since most venture capitalists expect an initial public offering, your LLC may fail to attract investors due to these limitations.
How to Start an LLC
To form an LLC, "Articles of Organization"
must be filed with the state and all state filing fees must be paid in full. Let us help you get started >
