If you are a new business owner in Illinois, one of your first steps will be determining which type of business formation you want for your business. The formation you choose will serve as the blueprint for your business and will have a significant impact on all future dealings and transactions, so it is important to choose wisely.
Many business owners opt for a limited liability company, or LLC. Here are some advantages and disadvantages of LLCs.
- Limiting your personal liability-Unlike with sole proprietorships and partnerships, your personal assets are generally protected from collectors if you have an LLC. This essentially means that while there is a possibility that you may have to close your business one day due to debt, you will still have your house and other assets.
- Simplified tax filing-LLCs are ‘pass-through’ entities, meaning that any company profits go directly to the members and will be taxed on members’ tax returns.
- Simple and cost effective-It is fairly easy to create and maintain an LLC. Management and membership are both flexible, filing fees are reasonable, and the paperwork you need to file is minimal.
- Piercing the corporate veil-If you do not keep your personal assets separate from your business, there is a chance that you could be personally liable for business debts, even with an LLC.
- Self-employment tax-Unless you opt to be taxed as a corporation, the IRS will tax your LLC like a partnership. This means you will have to pay self-employment tax based on your business’ net earnings.
- Costs-While costs are reasonable, an LLC costs more to maintain than a sole proprietorship or partnership.
- Difficult to transfer ownership-Generally, all LLC members must agree to add a new member or change ownership.
If you think an LLC may be right for you, a business law and commercial litigation attorney can help file the necessary paperwork and get your affairs in order.