LLC Disadvantages – What Are They?
Hello, this is your LLC Guru, welcome to our site where we help regular people get their own LLCs quickly, inexpensively, and with confidence! If you need an LLC, you are in the right place as in most cases we can help you get your own LLC in about 10 minutes!
Before we talk about our opinion of the possible LLC disadvantages, we want to make it clear that we are in no way giving legal or tax advice here!
LLC Def
As you likely know, the term LLC is short for Limited Liability Company, which is a U.S. business entity that provides certain liability protection to its owners – which let’s face it, in today’s society, is important. However, there are some potential drawbacks or LLC disadvantages, which we will discuss here.
LLC Disadvantages
An LLC has the advantage of being a pass-through business entity which means the taxes can be paid through the business owner’s personal taxes. While this is mainly seen as a positive, if there is a large profit initially or in one year, the business owner does not have the advantage of a corporation where it can delay profit distribution which can be an LLC disadvantage but it is not common.
In other words, if your LLC makes a lot of money, you will have to pay the taxes on that profit for that tax year all at once – there is no profit delay. This is because LLCs are not subject to double taxation (which is a good thing!) but it can be a negative thing if this profit pushes the business owner into a higher tax bracket.
This is something most would never really need to worry about, so in almost every case, an LLC makes sense for a small business. Also regarding taxes, profits from LLCs are subject to Social Security and Medicare taxes.
A third disadvantage, if you can call it that, is that it does cost a bit to start and in some states maintain an LLC. But the cost is so minimal for the protection you get, it’s a total no-brainer. Here on our site, we have a page explaining the current State fees to start and operate an LLC in each State. Most are very reasonable.
In most cases, the advantages of setting up your business as an LLC far, far outweigh the disadvantages but we thought it would be important to point out the few disadvantages that come to mind to our viewers. If your business gets into trouble or sued and you have not taken the 10 minutes or so it takes to get your own LLC and you have NO entity at ALL then you’ll be at a severe disadvantage, you don’t want that….. so cover yourself today if you’re vulnerable!
In my next post, we will unpack more details around LLC’s. If you are considering an LLC, please check out some of my other posts on this site or our videos on YouTube so you can learn more helpful information about LLC’s and how to use them to protect yourself in business.