When forming a new business, one of the first and most important things to look at is what sort of business formation to create.
LLCs remain a popular choice for many reasons. But are they right for you?
The benefits and pitfalls of an LLC
Nerd Wallet takes a look at what LLCs offer. The main draw, of course, is the limited liability protection. In short, if you opt for an LLC, your personal finances usually remain untouched even if your business goes under. There are some exceptions to this, of course, such as if you use business expenses to buy personal items.
After that, many people enjoy LLCs because they are relatively easy to start up and maintain. They do not have a lot of paperwork, and the start-up fees are usually mild.
However, annual fees and maintenance fees from state to state differ vastly. In some states, running an LLC actually ends up incredibly expensive because of these yearly bills.
Management flexibility is another plus. Rather than having to worry about what happens when a member leaves, LLC members may come and go as needed with little work involved in the process.
On the negative side, members who work for an LLC count as self-employed in the eyes of taxation law. Self-employment taxes often seem much more complicated than other types of taxes and some people are not used to the extra effort. It may not be worth the benefits, depending on the complexities of the business and its taxes.
These are all important things to keep in mind when making a decision about which business model works best.