Posted by Molly Nelson -
As an NASE Member, you have access to discounts on incorporation services and DBA registration through BizFilings. If you are unsure if forming an LLC is the right thing for your business, our guest blogger, Julie Henningfield, offers some pros and cons to help you decide. Remember to consult with our small business experts at ShopTalk if you have any additional questions! What are the pros and cons of forming an LLC?
The U.S. Bureau of Labor Statistics recent data reflects that the number of self-employed workers choosing to
incorporate their small business has climbed over the past two decades. Increased legal liabilities and elevated health costs have turned the tide for self-employed individuals in making the decision to incorporate.
Limited Liability Companies or “LLCs” are common types of business entities that entrepreneurs turn to when considering incorporation. LLCs are for-profit, legal entities that exist separately from their owners. Often coined as a hybrid business form, LLCs join the liability protection of a corporation with the tax treatment and ease of administration of a partnership.
Is
forming an LLC the right choice for your business needs? Consider the pros and cons.
The pros of forming an LLC
Introduced a little over 30 years ago, the LLC unites the primary features of a corporation with the relevant features of a sole proprietorship or general partnership. LLCs can be formed only through filing a formation document, referred to as articles of organization, at the state level, and paying the required state filing fee.
Benefits of forming an LLC include:
- Pass-through taxation - Similar to a partnership, LLCs file an informational tax return, but the LLC pays no tax. The bottom-line profit of the business is not regarded as earned income to the members, and therefore is not subject to self-employment tax.
- Protection of personal assets - Members are not personally responsible for the debts and liabilities of the business.
- Credibility – Positioning your business as an LLC also promotes credibility. Customers identify with incorporated businesses because the “LLC” at the end of the business name is automatically associated with “official.”
- Multiple owners - No limitations on the number of members, or owners, allowed.
- Flexibility – When it comes to organizing the management structure of the company, terms are typically flexible for an LLC. By design, this entity is easy to maintain and operate because members are entitled to set their governance rules applicable to their business.
- Limited formalities - Does not require as much yearly paperwork or have as many official procedures as C corporations and S corporations.
The cons of forming an LLC
Generally, LLCs are more costly to form than sole proprietorships and general partnerships. Ownership is also generally more difficult to transfer than with a corporation. And because the LLC is a relatively new business structure, there is not as much case law to count on for determining precedent.
Are you currently self-employed and thinking about incorporation? What factors are you considering in making your decision?
Julie Henningfield is a member of the Marketing Team for BizFilings, the preferred online incorporation experts for over 500,000 small business owners. Headquartered in Madison, Wisconsin, BizFilings’ Incorporation Specialists offer step-by-step processes, allowing small business owners to incorporate with confidence. BizFilings also offers a full range of business filing and compliance products and tools, including Registered Agent Service in all 50 states, to help businesses remain in compliance with state regulations.