Advantages & disadvantages of forming a Limited Liability Company

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If you are thinking about starting a business, then you need to consider forming a limited liability company, otherwise known as an LLC.  Every business I have ever created has been an LLC, and I have been really happy with the results. It’s the best way to protect yourself while giving your company a lot of flexibility.  I use Incfile, which I have found through my own experience to be the best, most affordable solution for new businesses (or any businesses) wanting to get an LLC.  Here’s why:


  1. It protects you from being personally liable: Now, when you start a business, you don’t want to think about a business failing, but it is something you have to think about.  You need to protect yourself personally, in case your business incurs any debts, or has a lawsuit, etc. Starting a business can be scary enough without you having to worry about whether or not you will personally wreck yourself financially.
  2. It’s the best of both worlds: If you’ve thought about filing your company as a corporation, sole proprietorship or a partnership, then why not choose an LLC, which is the best of both worlds?  An LLC, like a sole proprietorship or a partnership, are pass-through entities for federal income tax purposes, which basically means that the entities are not subject to income tax (unlike a corporation) and there’s less paperwork.  On the other hand, LLCs get the limited liability you would get as a corporation, unlike with a partnership or sole proprietorship where if you incur debts, it is the legal responsibility of all partners to pay it off. With an LLC, you yourself are not personally liable.
  3. Flexible Tax Status: By default, an LLC is taxed as a partnership or a sole proprietorship, but your LLC can elect to be taxed as as a C- or S- corporation if you choose.
  4. Profit Flexibility: The profits for each LLC member can be weighted differently from the ownership percentage in an LLC, unlike in a corporation.
  5. No Ownership Restrictions: An LLC has no residency or citizenship restrictions, so if you were considering starting a business with someone who was not a US citizen or you are not a US citizen and you want to start a business in the US with US citizens, you can.
  6. It’s more informal than a corporation: Corporations typically by law have to at least 1 meeting a year with directors & shareholders, keep minutes of all meetings & all formal corporate resolutions, adopt bylaws, etc. and while you can do those things as an LLC, you are not required to do so, which once again gives you more flexibility.
  7. You can do it if only you own the business: You might think that if you own the business by yourself, you’ll have to start your business as a sole proprietor, but you can still form an LLC with just one person and protect your personal assets.


  1. The cost: Forming an LLC does cost so that does add on to your startup cost (which you never like to do when you’re starting a business, as you need the money for so many other things) but trust me, it is well worth the price and I’ve found incfile to be the most affordable option that I’ve used to form an LLC.  Still, it’s not free so it’s something you have to consider.
  2. Banking: Another cost from forming an LLC is the cost of a business checking account because, since you need to keep your business separate from your personal finances, you can’t just do business with your own bank account.  Though again, for me, the positives of an LLC outweigh this cost.
  3. LLC Termination: Usually when a member departs an LLC the LLC is terminated & no longer exists (unlike with a corporation), so that is something to think about if you are starting a business with others.
  4. Self Employment Taxes: LLCs are usually subject to self-employment taxes, though if you want to avoid this, you can choose to be taxed like a corporation.  Every business is different, so you might want to consult an accountant to figure out what would be best for you tax wise.