Becoming an entrepreneur has become increasingly popular in the USA as millions and millions of Americans start or run their own businesses.
However, once you start to grow and make more money, it is important to take steps to protect yourself, your assets and your company. There are different ways to do this, but one of the most common is to form an LLC (which stands for a Limited Liability Company).
An LLC is a simple corporate structure, in which those who own or work for the company are not held liable for the debts or liability of the company. Essentially, it is a “hybrid” between a sole proprietary and a corporation, offering some of the benefits of both.
The Benefits and Drawbacks of an LLC
So now you know a little bit about what an LLC is, what are some pros and cons when it comes to forming one? In terms of benefits, there are many. The first huge benefit is that you and your personal assets are protected. If you don’t have an LLC, you could be held liable for the debts of your company, which can be very expensive.
Another benefit of an LLC is that you benefit from pass-through taxation, which means any net income/loss will basically be taxed as personal income. LLCs are also quite easy to apply for and there are very minimal compliance requirements, which can make running your business a lot simpler. Also, anyone can start an LLC as there are no citizenship rules or anything, and the costs to form one are quite low, too.
As for the drawbacks of an LLC, there are a couple. First of all, it can make things more cumbersome than simply running a sole proprietorship. You will need a separate bank account for your company, and you will need to keep immaculate records to ensure limited liability. Also, while the pass-through taxation can be a plus for some, it might be a negative to others as the taxation can potentially be larger, as self-employment taxes are generally more than corporate taxes.
What Are the Different Types of an LLC?
Now that you know some of the reasons to (and not to) form an LLC, you should be aware that there are different types of LLCs. Each type of LLC will have different characteristics from the rest. In an effort to help you understand them, we have decided to take a closer look at a few of them here for you.
If your LLC is operating in the exact same state as where it was formed, it will qualify as a domestic LLC.
This means that the LLC is operating in a different state than the one it was formed it.
Single/ Multiple Member LLC
A single member LLC features only a single member, whereas a multiple member LLC will have many different members/owners.
Member/Manager Managed LLC
A member-managed LLC is one where the members are the ones actually operating the business themselves. A manager-managed LLC is one in which some members want to be passive in running the company. Both members and non-members can be given the role of the manager in this scenario.
In conclusion, we sincerely hope that this article has helped you learn a little more about what an LLC is, and helped you decide if forming an LLC is right for you and your company or not. It will differ from company to company, so what makes sense for someone else, might not make sense for you.