Introduction

Do you want to make the dream of your own company a reality but don’t know yet which legal structure to choose? This is one of the most important decisions an owner should make on the way to a thriving business. The type of structure, about which you can read on https://bestllcservices.co/ website, affects all of the most important aspects of the operation: revenue, liability, risks, etc. So, it’s important to make a well-considered decision.

In this article, we will analyze the strengths and weaknesses of creating an LLC company to start a small business. In addition, we will touch on the topic of hiring professional service and give some examples of the best websites for online LLC formation in the industry.

Reasons for LLC Formation

An LLC is a legal entity doing business on its own behalf, distinct from its owners.

While creating a sole proprietorship and partnership, it is enough just to start working. The process of LLC incorporation is strictly regulated. It requires some investment of time and money, but, in return, the company receives such advantages of separate legal entities that have passed-state registration, as:

• The ability to conduct business under a name other than the names of the founders;
• More respect from potential customers or partners;
• Separation of corporate assets from the personal assets of participants;
• Expansion of funding opportunities;
• Accelerated growth and development of the company.

Of course, if you want to start your own business, establishing an LLC is not the only option available. However, due to its many advantages, this legal structure is suitable for a wide range of individuals. Let’s take a look at the pros and cons of creating an LLC in a little more detail.

Pros of LLC formation

Among the pros, for which hundreds of entrepreneurs across the country value an LLC, are the following:

1) Personal Asset Protection. One of the main reasons for choosing an LLC company is the ability to protect the owners’ personal assets in the event of a lawsuit against the business. The company conducts business in its own name and is responsible for its own debts and liabilities. Due to the separation of business assets and personal assets of the members, creditors’ claims will be limited to LLC property only. Thus, the assets of the owners will not be affected, regardless of the financial status of the company.

2) Pass-Through Taxation. After LLC incorporation, taxes become an integral part of any company. There is no way to avoid them, but you can save money by choosing the right business structure. By default, most LLCs are “pass-through” taxable entities. While profits of corporations are taxed twice (at the level of the company and when distributed to shareholders), LLC formation helps avoid double taxation. Unless the participants have stipulated otherwise, the obligation of the company to pay taxes is transferred to the owners. They file personal tax returns, in which they state the income and expenses of the business.

3) Flexible Management. Unlike corporations, business formation of an LLC does not require compulsory internal structure, prescribed by the law. The number of participants and the management structure depends only on the owner. You do not need to look for a reliable partner to get started. In addition, as the business grows and develops, its management structure can be changed to provide the best performance.

4) Simple Formation and Maintenance. Although an LLC is a formal business structure, requiring the filing of documents and payment of mandatory fees, the process is simpler and cheaper than with a startup corporation. In addition, at an affordable price, you can hire one of the best LLC services that will take care of all the formalities on your behalf. This will markedly reduce the time cost of setting up the enterprise, and you will avoid unnecessary responsibility. In addition to a simple business formation process, an LLC is also easy to maintain. Owners do not need to hold meetings and keep numerous records since most companies only file annual or biennial reports.

5) Flexible Payouts. When you create an LLC company, you can stipulate any way of distribution of corporate profits and losses in the operating agreement. The only condition is the need to coordinate this decision with the other LLC members. Most often, payments are made in equal parts or proportionally to the capital contribution of each owner.

Cons of LLC formation

We have briefly reviewed the advantages of an LLC creation, it is time to move on to the disadvantages of this legal structure, which you should be aware of in order to make a balanced decision. So, the main disadvantages of starting an LLC are as follows:

1) Formation and Maintenance Fees. Due to its formal nature, LLC incorporation is more expensive than a sole proprietorship or general partnership. The cost of state fees varies depending on location. It can range from $50 to $500. In addition, LLCs must file an annual or biennial report, paying for its processing, which should also be considered when budgeting the company.

2) Can Be Uninviting to Investors. Compared to sole proprietorship and partnership, an LLC company is more reliable and stable. However, it is inferior to a corporation in terms of attractiveness to investors. This is due to the fact that the LLC has no right to sell membership shares. Accordingly, in order to invest in venture capital, you need to be a member of the company, which does not suit every investor.

3) Self-Employment Taxes. The law treats the owners of a company, who participate in its management, as self-employed individuals, not as employees. This means that they are responsible for paying self-employment tax, which consists of social security and health care tax. Currently, the rate is 15.3% of the company’s income.

4) Paperwork and Record-Keeping. After completing the Business formation, an LLC must comply with current state requirements to maintain its good standing. This includes filing all necessary paperwork on time, as well as keeping up-to-date copies of the following documents:

• Formation documents;
• Operating agreement;
• Annual reports;
• Tax documents.

Should I Hire an LLC Service for Help?

If you want to make the business incorporation process quick and easy, if you don’t like paperwork or just don’t want to be distracted from your business, there is a way out. Today’s online LLC formation industry offers dozens of affordable company formation services priced from $0 to $800. 

By hiring one of the LLC formation services, you will get a fully operational company and a wide range of useful additional services. In addition, LLC creation services, such as ZenBusiness or Northwest Registered Agent, provide 1-year free registered agent service with the purchase of any of their formation packages.

Conclusion

When choosing a legal structure for your business, it is important to consider important factors such as the ability to protect personal assets, risks, liability, etc. Of course, there is no universal answer to the question: “Which business structure is better?”, but the advantages of LLC incorporation are indisputable. Consider this option if you’re planning to start your own small business and are choosing between LLCs, sole proprietorships, and general partnerships. Because of its limited liability, flexible structure, and affordable cost, an LLC company will be the best choice for most entrepreneurs.