LLC Advantages and Disadvantages

There are many advantages and some disadvantages you should be aware of if you’re considering incorporating your Illinois business as an LLC.

This list is by no means inclusive, but includes some of the more commonly mentioned LLC advantages and LLC disadvantages in business articles.

LLC Advantages

“Check the box taxation” – LLC’s can choose taxation as one of the following: C Corp, S Corp, Partnership, Sole Proprietorship.

LLC’s have “limited liability”. Kind of the whole point – It means that the LLC owners (members) enjoy some protection from liability for acts and debts of the LLC.

Conserve paperwork, administrative/ record keeping versus a typical corporation.

Pass-through taxation – meaning, there is no double taxation on the corporation and on personal taxes for owners, unless the LLC chooses to be taxed as a “C-Corporation”.

LLCs in most states are treated as entities separate from their members.

Most states allow 1 person LLC’s.

Membership interests can be assigned, gain of those interests can be separated and assigned.  The person assigned receives economic benefits of distributions of profits/losses similar to a partnership, without transferring the title to the membership interest.

If the LLC hasn’t chosen taxation as a corporation, the income of the LLC generally retains its character as capital gains or as foreign sourced income, in the hands of the members.

LLC Disadvantages

Although there is no statutory requirement for an operating agreement in most states, members who operate without one may run into problems.

LLC owners might have more difficulty raising capital for their LLC as traditional investors may prefer more traditional corporate structure.

Many states add franchise tax or capital values tax on LLC’s.

Lenders, creditors may require LLC members to personally guarantee the LLC’s loans, thus making the members personally liable for the debt of the LLC. This removes one of the advantages the LLC gives owners and members, that of limited liability for debts…

Unfamiliar management structure.

Taxing jurisdictions outside the US are likely to treat a US LLC as a corporation, regardless of the way the US looks at the LLC for tax purposes.

LLC’s are rather new. Some states don’t treat LLC’s in the exact manner as corporations for liability purposes.

Principals in LLC’s have many different titles. At times it’s difficult to determine who has the authority to do what.

More LLC information:

What is a Series LLC? – The State of Illinois allows for registration of a Series LLC if you are planning…

What is a LLC? – LLC incorporation has become a very popular form of incorporation over the years….

Incorporate your LLC now using our online form.