Advantages of Starting an LLC
There are several advantages to creating an LLC, but here are a few that stand out.
- Pass-through taxes. There’s no need to file a corporate tax return. LLC owners report their share of profit and loss on their individual tax returns, meaning you avoid double taxation.
- No residency requirement. Those who an LLC need not be U.S. citizens or permanent residents.
- Legal protection. Creating an LLC means gives you limited liability for business debts and obligations.
- Enhanced credibility. Partners, suppliers, and lenders may look more favorably on your business when it’s an LLC.
Disadvantages of Starting an LLC
Creating an LLC is an attractive option, but there are a few hurdles.
- Limited growth potential. LLC owners cannot issue shares of stock to attract investors.
- Lack of uniformity. An LLC can be treated differently in different states.
- Self-employment tax. LLC earnings can be subject to this kind of taxation.
- Tax recognition on appreciated assets. This could happen if you convert an existing business to an LLC. One more way that extra taxation can occur.