About time we separate fact from fiction.

Because you’ve been weighing the risks and rewards of forming a Limited Liability Company (LLC) in the US.

And we understand why you’re still on the fence. The web is cluttered with too many myths yet too few facts about the reality of US-based startups.

Let’s bust those misconceptions for good.

Today, scores of founders are turning their American dream into a reality, and so will you. 

Just don’t let those myths weigh you down. 

Remember, you don’t need a million-dollar idea for a million-dollar business.

You need to start. Start small, but start anyway.

In this blog, we will debunk the top 12 myths of LLC formation and provide the facts to help you make an informed decision. 

Additionally, we will highlight how doola can assist you in building your US-based business seamlessly.

❌ Myth 1: LLC Formation is Complex and Time-Consuming

Fact

Forming an LLC involves several steps but is easier than many believe. With the right guidance and resources, you can set up your LLC efficiently.

Explanation

While the process includes filing paperwork, choosing a registered agent, and ensuring compliance with state regulations, these tasks can be managed effectively with the proper support. 

Many entrepreneurs find that with step-by-step assistance, the process becomes simple and straightforward.

doola Mythbuster

doola simplifies LLC formation by offering comprehensive services, including filing the necessary paperwork, obtaining an EIN, and offering ongoing compliance support.

❌ Myth 2: You Must be a US Citizen to Form an LLC

Fact

Non-US citizens and non-residents can form an LLC in the United States. There are no citizenship or residency requirements for LLC members.

Explanation

The US welcomes foreign entrepreneurs to establish businesses within its borders. 

The process is designed to be inclusive, allowing international business owners to take advantage of the US market.

doola Mythbuster

doola specializes in helping international entrepreneurs set up their US-based LLCs, providing all the necessary tools and guidance to navigate the process. 

Explore how doola supports international founders.

❌ Myth 3: Forming an LLC in Certain States Avoids Taxes

Fact

Registering an LLC in tax-friendly states like Nevada or Delaware does not exempt you from federal taxation and may not eliminate all state tax obligations.

Explanation

Many entrepreneurs are drawn to states like Delaware and Nevada for their business-friendly reputations, often believing they can completely sidestep taxes by forming an LLC there. 

While these states offer certain advantages, they aren’t tax havens.

Here’s what you need to know:

1. Federal Taxes: Regardless of your LLC’s location, your business is subject to federal income tax.

2. State Taxes: Operating in multiple states can trigger state income, sales, or other taxes, even if your LLC is registered elsewhere.

3. LLC Tax Structure: Your LLC’s tax classification (disregarded entity, partnership, S-Corp, or C-Corp) affects how you and your business are taxed.

For instance, a Nevada-based LLC conducting business in California might owe California state income tax. 

This highlights the importance of careful tax planning and potentially consulting with a tax professional.

doola Mythbuster

doola provides expert guidance on understanding and managing the tax implications of operating an LLC across multiple states. 

By offering professional tax advisory services, doola helps you assess your tax obligations, optimize your tax strategies, and choose the most beneficial state for forming your LLC based on your specific needs. 

Learn more about how doola can help with LLC tax management.

❌ Myth 4: An LLC is Only Beneficial for Large Businesses

Fact

LLCs are suitable for businesses of all sizes, from solo entrepreneurs to large corporations. 

They offer flexibility and protection that benefit businesses at every stage of growth.

Explanation

The LLC structure provides significant advantages, such as limited liability protection and pass-through taxation, making it a viable option for startups, small businesses, and large enterprises alike.

doola Mythbuster

Whether you are a freelancer or a growing startup, doola offers tailored solutions to meet your specific needs.

❌ Myth 5: LLCs Don’t Offer Liability Protection

Fact

An LLC business entity comes with inherent liability protection features for its owners. 

This means that personal assets are generally protected from business debts and liabilities.

Explanation

By separating personal and business assets, an LLC ensures that your personal property is shielded from any legal actions or debts incurred by the business, offering peace of mind and financial security.

Of course, there are exceptions where the founding members can be held liable, such as:

1. Providing personal guarantees: If you personally guarantee a business loan, you risk personal liability.

2. Engaging in illegal activities: Illegal actions can pierce the corporate veil and expose members to personal liability.

3. Commingling funds: Mixing personal and business finances can blur the lines of liability.

4. Poor recordkeeping: Inadequate financial records can make it difficult to defend against claims and may lead to personal liability.

doola Mythbuster

doola ensures your LLC is set up correctly to maximize liability protection and offers resources to help you maintain compliance. 

Learn more about doola’s compliance services.

Note: For mission-critical industries such as manufacturing, sample transportation, cybersecurity, healthcare, medical labs, and chemicals, doola ensures your LLC insurance widens your cover against losses such as:

• Property damage

• Customer lawsuits

• Data breach

• Infringement claims

❌ Myth 6: Forming an LLC is Expensive

Fact

The cost of forming an LLC varies by state, but it is generally affordable. 

The benefits of liability protection and potential tax advantages often outweigh the initial costs.

Explanation

Initial fees for forming an LLC include state filing fees, registered agent fees, and any additional services you might need. 

These costs are relatively modest compared to the long-term benefits of operating an LLC.

doola Mythbuster

doola provides transparent pricing and various packages to suit different budgets, making LLC formation accessible and affordable. 

Check out doola’s pricing options.

❌ Myth 7: You Need a Physical Office in the US to Form an LLC

Fact

You do not need a physical office in the US to form an LLC. Many businesses operate remotely or use virtual office services.

Explanation

Modern businesses can operate from anywhere in the world, and the LLC structure accommodates this flexibility. 

A registered agent with a physical address in the state of formation is sufficient.

doola Mythbuster

doola offers virtual office solutions and registered agent services to meet the requirements for forming an LLC without needing a physical office. 

Find out more about doola’s virtual office services.

❌ Myth 8: LLCs are Taxed Like Corporations

Fact

LLCs offer flexible taxation options. By default, single-member LLCs are taxed as sole proprietorships and multi-member LLCs are taxed as partnerships. 

LLCs can also elect to be taxed as S-corporations or C-corporations.

Explanation

This flexibility allows LLC owners to choose the tax structure that best suits their financial and business goals, potentially reducing their overall tax burden.

doola Mythbuster

doola provides expert advice on choosing the best tax structure for your LLC and helps with the necessary filings.

❌ Myth 9: Managing an LLC is Overwhelming

Fact

While running any business requires effort, LLCs are designed to be flexible and easier to manage. 

With the right tools and support, managing an LLC can be efficient and effective.

Explanation

LLCs have fewer formalities than corporations, such as no requirement for annual meetings or extensive recordkeeping, making them easier to manage daily.

doola Mythbuster

doola offers a range of resources, including bookkeeping, compliance tracking, and advisory services, to help you manage your LLC effortlessly.

❌ Myth 10: You Must Have a Business Partner to Form an LLC

Fact

You can form a single-member LLC if you are the sole owner. There is no requirement to have business partners to establish an LLC.

Explanation

The flexibility of the LLC structure makes it ideal for both solo entrepreneurs and those who wish to operate with partners. 

Single-member LLCs enjoy the same benefits as multi-member LLCs.

doola Mythbuster

doola provides support for both single-member and multi-member LLCs, ensuring all legal requirements are met.

❌ Myth 11: LLCs Can’t Participate in Government Contracts

Fact

LLCs can bid on and participate in government contracts, provided they meet the necessary qualifications and compliance requirements.

Explanation

Government contracts are available to businesses of all structures, including LLCs. Meeting specific criteria and compliance requirements allows LLCs to access these opportunities.

doola Mythbuster

doola offers resources and guidance on meeting government contract requirements and helps you navigate the application process.

❌ Myth 12: LLCs Fail to Attract Investors

Fact

Contrary to popular belief, LLCs are an attractive investment vehicle for many investors. 

While corporations often dominate the funding landscape, LLCs offer unique benefits. 

Angel investors, private equity firms, and those seeking alternative investment structures find LLCs appealing due to their flexibility and tax advantages.

Explanation

LLCs offer the following unique advantages that resonate with different investor profiles.

1. Tax Efficiency: LLCs avoid the double taxation that plagues corporations, potentially increasing investor returns.

2. Flexibility: LLCs provide more flexibility in profit sharing and management structure compared to corporations, appealing to investors seeking customized arrangements.

3. Growth Potential: Starting as an LLC allows businesses to scale and evolve. When the time is right, transitioning to a corporation is an option.

doola Mythbuster

doola empowers entrepreneurs to make informed decisions about their business structure. 

We provide expert guidance on the pros and cons of LLCs versus corporations, helping you attract the right investors for your business.

Whether you’re starting as an LLC or considering a transition, doola offers the support and resources you need to navigate the complexities of business formation and growth.

Unmask LLC Truths: Launch Your US Business with doola

Forming an LLC can be a game-changer for entrepreneurs aiming to protect their assets, enjoy tax benefits, and operate with flexibility. 

By dispelling these common myths, we hope to empower more business owners to seize the opportunities that LLCs offer.

At doola, we are dedicated to making the LLC formation process as seamless and accessible as possible. 

From filing paperwork and obtaining EINs to providing ongoing compliance support and tax services, doola is your trusted partner in building a successful US-based business.

Don’t let myths and misconceptions keep you from achieving your entrepreneurial dreams. 

Trust us to guide you through the process and provide the support you need to thrive in the US market.

Ready to build and scale your business? Start your LLC journey with doola today!

FAQs

Legal and Business Structure

Do I need permits or licenses to start a business in the US?

Yes, the specific permits or licenses required depend on your business type and location. Research your state and local regulations to ensure compliance.

How do I register my business name?

Most states require a DBA (Doing Business As) or fictitious name registration for business names that differ from the owner’s name. Check your state’s specific requirements.

Funding Your Business

What are my financing options for a new business?

You can fund your business through personal savings, loans, investor capital, or government grants. Explore options like SBA loans, crowdfunding, and angel investors.

Should I hire a lawyer to help with business formation?

While not mandatory, a lawyer can provide valuable guidance, especially for complex business structures or navigating specific industry regulations.

Protecting Your Business

How does an LLC protect my personal assets?

An LLC creates a legal separation between your personal and business assets, shielding you from personal liability for business debts and lawsuits.

Are there limitations to LLC liability protection?

Yes, in cases of negligence, fraud, or undercapitalization, your personal assets could be at risk. Maintaining proper corporate formalities is essential.

What insurance do I need for my LLC?

Liability insurance is crucial to protect your business from lawsuits and claims. Additional coverages like property insurance and workers’ compensation may be necessary depending on your industry.

Additional Considerations

Can my LLC be sued?

Yes, any business can be sued. That’s why having adequate liability insurance is essential.

How do I choose the right insurance plan?

Assess your business risks, compare insurance providers, and consider factors like coverage limits, premiums, and policy terms when selecting a plan.