A Limited Liability Company or an LLC is a company structure that borrows some features from Corporations and others from Partnerships.
Similar to Corporations, LLCs provide you with a huge advantage in the form of limited liability protection. On the other hand, LLCs have a flow-through taxation structure, just like it is in Partnerships.
In a nutshell, LLCs can be considered hybrids.
If you are someone who is looking to form their own LLC, take a step back. First, consider the pros and cons of LLCs carefully.
What Are the Advantages of LLCs?
Let’s first check out the advantages of forming LLCs:
- Forming LLCs is easy and also relatively inexpensive.
- Because of the limited liability feature of LLCs, none of the members is liable to pay the debts of the LLC personally.
- The members of the LLC can decide how they want the profits to be distributed.
- You don’t need to maintain formal records of resolutions or meetings for LLCs.
- LLCs do not have a double taxation system.
What Are the Disadvantages of LLCs?
While LLCs do offer a lot of advantages for small business owners, they do also have their own drawbacks.
Here are some of the disadvantages of LLCs:
- Federal, as well as state-level filings, are required for all LLCs.
- You need to pay state filing fees for the year when you form the company, and every year consequently.
- An LLC isn’t the best structure for companies with investors who want to make their companies public.
Now that you have a balanced perspective on LLCs, you can make an informed decision. If you are still interested in forming your own LLC, here is what you need to do.
Steps to Form Your Own LLC
The first step to form your LLC is to apply for your LLC EIN (Employer Identification Number). Once you get it, you need to file Articles of Organization with the Secretary of State.
That’s not all.
In addition to this, you are also required to make an operating agreement for your LLC. This agreement should outline the financial as well as functional frameworks for your LLC.
It should also clearly define responsibilities and profit distribution between members. Although creating an operating agreement isn’t a requirement in all states, it is recommended that you make one.
About the Author
Brett Shapiro is a co-owner of GovDocFiling. He had an entrepreneurial spirit since he was young. He started GovDocFiling, a simple resource center that takes care of the mundane, yet critical, formation documentation for any new business entity.