When opening an LLC in the US, there are a few factors to note that will help you make your decisions smoothly. This article will discuss some essential things to know when forming this type of company.
What Is an LLC?
An LLC is a legal entity. Similar to a corporation and a partnership all in one, it allows a group of people to form a business. Though the structure is built for members, a sole owner can launch an LLC.
Members are individuals who own the company and take part in the general business. They can be investors and members with a say in the decision-making. You’ll usually see two types of LLCs: single-member and multiple-member.
Every state in the USA has its own regulations, but every state recognizes all LLCs no matter which state they have been established in. At its core, an LLC provides the same tax benefits and operational setup of a partnership while carrying the limited liability that corporations have.
Pros of an LLC
There are various benefits to running an LLC that may make it an attractive option for aspiring business owners.
- Limited Liability Protection
You’re not personally responsible for business debts and obligations. This is what makes an LLC desirable because you’re not responsible for things that may happen that you’re not aware of or not involved with.
Each member is only responsible for the LLC’s debts up to their portion of ownership in the company. So, this protects your personal assets should your business run into trouble.
It is easy to form an LLC, which is why it’s so popular. This can appeal to aspiring entrepreneurs who are just starting to get their businesses off the ground. It is considered a pass-through entity, and because of this, it has very few maintenance requirements. Even the setup is straightforward.
Because an LLC is not considered a separate taxpayer, it doesn’t get affected by double taxation. This makes it easier for business owners that want to save on the taxes that get imposed for profit and dividends.
Cons of an LLC
Despite its appeal, an LLC does come with its own challenges.
An LLC’s operational structure can be fairly lax, which can make for a complex governance structure. It may be difficult to get your business to run smoothly if your members don’t play an active role in the decision-making. You may want to make sure you have members that understand their roles and are willing to be active in making your business succeed.
An LLC is more expensive to set up than a sole proprietorship. If you’re launching a partnership, the initial fees are also lower than an LLC. This is mostly because of the different tax breaks afforded to LLCs down the line and the need for proof of LLC ownership early on.
If you’re thinking of starting your own business, an LLC is a very valuable asset. However, you need to consider the pros and cons of an LLC so you can properly map out your business plan and maximize your investment.
If you’re opening an LLC in the US, Doola has you covered. We are one of the top partners for global entrepreneurs aiming to launch in the US with the right legal compliances and best practices for growth. Contact us to schedule a free consultation.