Now that your small business is growing, it’s important to protect both your company and your own assets. Forming an LLC can help do that — but is it the best business entity choice for you? We’ve written a complete guide to forming an LLC to help with your decision.

The Advantages & Disadvantages of LLCs

The LLC structure has many benefits that make it perfect for a wide variety of companies. However, there are also some disadvantages to creating an LLC. Here are some of the biggest pros and cons to keep in mind.

Advantages

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Disadvantages

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What Does LLC Stand For?

The abbreviation “LLC” stands for limited liability company. The name refers to one of the primary benefits of this business entity type—LLCs allow business owners to keep their personal assets separate from those of the company. This effectively limits their own liability when it comes to company debts and responsibilities.

In the United States, a limited liability company is a business entity type that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation, creating the best of both worlds for business owners. LLCs have rapidly become one of the most popular business structures for new and small businesses, largely because they are considered to be simpler and more flexible than a corporation.

When you form an LLC, your business becomes its own legal entity, with separate debts and legal matters. However, LLCs are still tied to your personal taxes.

What Types of Businesses Should Choose an LLC?

If you don’t plan on raising investment money for your business, think you might need asset protection and need flexible business management and taxes, then an LLC is likely the best choice for your business. Whether you are a sole proprietor, have a partner, or a multi-member corporation, the LLC is a great choice for small business owners, as it can provide the same limited liability protection as a corporation, without many of the complexities and formalities associated with them. At Incfile we see all sizes and verticals of businesses forming an LLC — from LLCs for real estate agents or financial advisors to solopreneurs such as personal trainers or even marijuana businesses. A number of entrepreneurs decide that an LLC is the business structure that fits their needs.

Some businesses are prevented from forming an LLC, however. Typically financial companies such as banks, financial trust companies and insurance agencies can’t file as an LLC. LLCs are sometimes limited for industries in certain states, too. For example, if you live in California, you can’t form an LLC if you’re an architect, accountant or licensed health care provider.

Understanding LLC Requirements

LLCs, unlike corporations, are not required to hold annual meetings and keep minutes, nor are they subject to the more stringent record keeping required of corporations. But there are certain LLC requirements you’ll need to keep in mind.

The operating agreement is an internal document and is an agreement amongst the members or owners, which means it is not recorded with the state.

LLC Annual Reports

In many states, LLCs must file an annual or biennial report with their Secretary of State. Failing to file can result in your business being dissolved.