The Benefits and Drawbacks of an LLC

The Benefits and Drawbacks of an LLC

A Limited Liability Company (LLC) is a business structure that is particularly useful in the formation of small businesses. It combines some of the benefits and features of a business partnership with those of a corporation, providing business owners additional protection for their personal assets like their home or car.

What are some specific benefits of an LLC, and what are some downsides? Here is a quick summary.

The Benefits

Profits and losses in an LLC pass through as personal income of members of the LLC. This means there are no corporate taxes to be paid. In an LLC, the personal assets and property of the members are isolated from a business bankruptcy or lawsuit. Another benefit of an LLC is that it can have a single member or multiple members and multiple members and payments are unrestricted to the members of an LLC. Among the other benefits of an LLC is that it is easy to form and maintain.

The Drawbacks of an LLC

The cons of an LLC are that there are costs associated with its formation and annual fees to maintain it. While there are tax benefits, there are still tax issues with an LLC, with members receiving K-1 forms detailing profit and losses. You will also have to check with your state to see if it has applicable franchise or excise taxes. Another drawback of an LLC is that it can be more difficult to raise funding for an LLC than a C-Corporation.

If your personal assets are protected with an LLC, does this mean you can operate without business insurance? It is just simply not a good idea to operate any business without business insurance.

While your personal assets may be protected, all of your company assets are still at risk even with an LLC. If there is not a clear delineation between personal and business assets that also, could put personal assets at risk. In addition, if you sign personally for a business loan, that too, is a game-changer. Should your LLC become involved in a liability lawsuit, business insurance would cover the legal costs, settlement costs and/or judgement costs. If you operate an LLC without business insurance, you are liable for potentially expensive legal costs, even if the lawsuit is unsuccessful.

Of course, before forming any company, you’ll want to discuss options with an attorney and tax accountant.

To discuss protecting your business with a business insurance plan, contact one of our independent agents. They work with a variety of insurance companies who may specialize in insuring businesses just like yours. Contact us today and see how affordable protecting your business can be!

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